What the SEC Cares About In Advertising

In our last post, we covered the FTC–the federal regulator that sets truth-in-advertising standards across all industries. Now it’s time to look at a specialized regulator: the Securities and Exchange Commission (SEC).

The SEC referees any individual or company that markets investment products, advisory services, or securities. However, unlike the FTC’s broad consumer protection mandate, the SEC’s focus is far narrower–protecting investors and maintaining fair, efficient markets.

What Is the SEC and Why Was it Created?

To understand the role of the SEC today, it’s essential to look back at the US investor climate a century ago. During the 1920s, widespread fraud, manipulation, and lack of transparency in securities markets led to the Great Depression and the 1929 stock market crash. Investors had no reliable way to evaluate companies, and when the market imploded, public confidence in the US financial system was quickly destroyed.

Congress responded with landmark legislation: the Securities Act of 1933 and the Securities Exchange Act of 1934. In parallel, the SEC was created in 1934 with a clear mission: “protecting investors, maintaining fair and efficient markets, and facilitating capital formation.” From then until today, the agency’s enforcement actions aim to ensure that securities companies remain honest about their business, while treating investors fairly and honestly.

Back Your Claims Before Going Live

Suppose your  investment advisory service website says your company provides “top performing strategy.” This seemingly simple claim triggers multiple SEC requirements–from documenting substantiation for your performance claim, through presenting performance over specific time periods, to avoiding cherry-picking your best results while hiding the rest. The bottom line: The SEC requires investment marketing to be precise, technical, and unforgiving.

Who Does the SEC Oversee?

The SEC oversees key participants in the securities markets, including:

• investment advisers
• broker-dealers
• investment companies (e.g., mutual funds, ETFs)
• public companies

Meanwhile, the marketing compliance requirements that a registered investment adviser or investment product manager are subject to are, to say the least, broad: the agency’s advertising regulations apply to virtually everything published about investment services and products.

What Does the SEC Look For in Marketing?

The SEC’s marketing oversight can be divided into four risk categories.

1. Misleading statements and missing context‍

The SEC prohibits advertisements that include untrue statements of material fact or omit material facts necessary to ensure that statements are not misleading. This means that even technically accurate statements can violate the rule if they create misleading implications. For example, a fund that claims it “focuses on sustainable companies” while investing heavily in fossil fuel companies creates a misleading impression, even if it has some sustainable holdings.

2. Substantiation

Can the claims be proven? The SEC requires that investment advisers have a reasonable basis for any statements made in advertisements. Performance claims, investment process descriptions, and service characterizations must be supported by evidence.

3. Performance information

Performance information in advertising triggers some of the SEC’s most detailed requirements. The agency’s Marketing Rule mandates specific time periods for performance presentation, requires gross and net performance in most instances, and prohibits cherry-picking the best-performing portfolios while hiding the rest.

Hypothetical performance–including back-tested results, model portfolios, and targeted returns–faces even stricter requirements. For example, a company must adopt and implement policies to ensure its hypothetical performance is relevant to the target audience’s likely financial situation and investment objectives.

4. Testimonials, endorsements, and third-party ratings

While the SEC’s Marketing Rule allows for testimonials and endorsements, it requires clear and prominent disclosures. Investors need to know whether the person endorsing a service is a current client, whether they’re being compensated, and what conflicts of interest, if any, exist. Third-party ratings (e.g., being named a “top adviser” by a publication) require disclosure of the criteria used, the group of advisers considered, and the compensation received to obtain the rating. The goal is to prevent investors from being misled about what these endorsements actually mean.

What the SEC Is Flagging Now: 5 Actions of Note

Several recent SEC enforcement actions illustrate what could trigger the agency’s attention. 

Marketing Rule Sweep: Hypothetical Performance (September 2023)

The SEC charged nine investment advisers for advertising hypothetical performance on their public websites without adopting required policies and procedures. The advisory firms displayed model portfolio performance and back-tested results to mass audiences without implementing policies to ensure that such hypothetical performance was relevant to the likely financial situations and investment objectives of the audience. 

The penalty: $850,000 (between $50,000 to $175,000 per firm)

The lesson: Presentation of a hypothetical performance requires robust policies to ensure relevance to the audience.

Marketing Rule Sweep: Missing Disclosures (September 2024)

Nine other investment advisers settled charges for violations that included untrue statements, unsubstantiated claims, and testimonials or third-party ratings lacking required disclosures. One firm advertised endorsements without disclosing that the endorser was paid and wasn’t a client. Another claimed to provide “conflict-free” advisory services, but couldn’t substantiate the representation. A third made false statements about third-party ratings. 

The penalty: $1.24 million (between $70,000 to $295,000 per firm)

The lesson: All testimonials, endorsements, and ratings require specific and prominent disclosures.

AI-washing (March 2024)

The SEC settled charges against Delphia (USA) Inc. and Global Predictions Inc. for making false and misleading statements about their use of artificial intelligence. Delphia claimed it used AI and machine learning to analyze client data in its investment process when, in fact, it didn’t maintain such capabilities. Global Predictions, meanwhile, falsely called itself the “first regulated AI financial adviser,” and misrepresented the company by claiming to provide AI-driven forecasts. 

The penalty: $400,000 (Delphia $225,000, Global Predictions $175,000)

The lesson: AI claims in the investment process must be true and implemented as described.

Greenwashing: Invesco (November 2024)

The SEC charged Invesco Advisers with making misleading statements about the percentage of its assets under management (AUM) that integrated ESG factors. From 2020 to 2022, Invesco claimed in conversations with clients and in marketing materials that 70-94% of its parent company’s AUM was “ESG-integrated.” The truth is these percentages included substantial assets in passive ETFs that didn’t consider ESG factors in their investment decisions. Invesco also lacked any written policy defining ESG integration. 

The penalty: $17.5 million

The lesson: ESG claims must be accurate, substantiated, and consistent with actual practices.

Current Examination Focus: Testimonials and Ratings (December 2025)

The SEC’s Division of Examinations recently issued a risk alert highlighting ongoing deficiencies in advisers’ compliance with testimonial, endorsement, and third-party rating requirements. Examiners have found advisers who didn’t have required written agreements with paid promoters, failed to make clear and prominent disclosures about compensation, and couldn’t demonstrate a reasonable basis for believing their testimonials comply with the rules. 

The penalty: None imposed to date

The lesson: Testimonials and ratings are likely to come under greater SEC scrutiny.

Want to Make Sure Your Review Workflow Meets SEC Standards?

Focusing on protecting investors and maintaining fair, efficient markets, the SEC oversees a range of players – from investment advisers to public companies – and a range of marketing materials – from website content, through video content, to podcasts.

Given the agency’s broad purview, marketers at investment service companies need to ensure that their marketing compliance process catches regulatory issues before the SEC does. Blee helps investment advisers and financial services firms streamline their marketing review workflows, making sure that every piece of content gets the specialized scrutiny it needs.

Request a marketing compliance workflow review to see how we can help you stay ahead of regulatory risk.

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