How to Avoid Investment Advertising Rule Violations Without Hijacking Your Presentation Design

Last fall, the SEC came out with a risk alert describing the most common ways investment advisors violate advertising laws. We appreciate that, but sometimes complying with them can be so utterly cumbersome to the design of a presentation. Who really wants their PowerPoint to be so cluttered with disclaimers that nobody pays attention to anything else?

Here we have presented our best ideas, from a marketing standpoint, about how to play by a few of these rules without sacrificing the beauty of your deck. Please keep in mind that we are not attorneys and this cannot be interpreted as legal advice – so if you have questions about how to implement our suggestions, then please refer to your compliance advisor.

#1 Cherry-Picked Stock Selections

It is very misleading to only include the few examples of stock selections that worked out well. But then again, how do you illustrate your investment process without a few trade examples. How do you please both masters?

First, we recommend you include the performance of the entire composite (that way you are not excluding any data from the set) and then make a separate focus piece on the trades you want to talk about. This can be achieved, for example, by simply adding a page to your PowerPoint right after the composite results page.

Then you can talk about the rationale for trades instead of the performance. Investors have heard it all before and are always skeptical of these performance claims anyway. What they really want to know is how you came up with the ideas. Remember, sometimes showing why things did not work and what you learned is as powerful as showing how you hit it out of the park.

#2 Inadequate Compliance Policies and Procedures

The SEC takes issue with the fact that many advisors do not have adequate controls in place to prevent advertising violations. They specifically cited, as an example, advisors who failed to have a process in place for reviewing and approving materials prior to dissemination (U.S Securities and Exchange Commission, 2017).

We hate to admit it, but we hear the SEC loud and clear on this one. Our experience working with hedge funds has been that often these are lean organizations who operate with a skeleton crew. That works out well for them when there is a smaller number of hands in the bonus pot. However sometimes this can create operational gaps.

If you do not want to spend a million dollars on an in-house compliance group, there are a few solutions. One, you can hire an outside compliance firm, many of which bill on an hourly basis. To lessen the expense, you could make sure that you work with a compliance-aware marketing consultant. Many marketing professionals have no clue when it comes to advisor advertising laws but some firms are specialized in this area. This can reduce the time taken by your counsel and hence the attorney bill.

#3 Misleading Use of Third Party Rankings or Awards and Professional Designations

The SEC cited examples of advisors presenting rankings that were several years old and hence no longer applicable, or touting themselves as holding designations that had lapsed (U.S Securities and Exchange Commission, 2017).

We hate to admit it, but as marketing people who look at hedge fund websites and PowerPoint presentations all day, we have to agree that this does happen fairly often. Most of the time it is not even intentional. All you have to do is forget to pay your CFA® fees one year and whoosh, there goes your designation out the window. When you are laser focused on the next billion dollar investment idea and you have several designations to maintain, it is easy to let somethings slip.

We recommend that firms put together a marketing checklist for their branding consultant, and that this checklist includes a bi-annual examination of all the awards and designations claims that the firm is making.

Having a financial industry focused marketing person is the best thing you can do for yourself when it comes to compliance.

#4 Using Testimonials

If you are an investment advisor, do not use testimonials. The odds of you winning a battle with the SEC on this one is so low that it is not worth the risk.

That does not mean what your clients say about you does not deserve a voice. You just cannot quote them directly.

Here is where advisor firms tend to miss the boat: the brand. The client experience is essentially the brand. Forget the same old marketing clichés about how your hedge fund is the best because it is run by an ex-Lehman trader who ran billions of dollars for every pension fund in the world.

That is about you, not about them.

Instead, interview your clients and then craft a sincere message about the experience. Talk about how your client service is one of the industry’s finest, about how your staff responds within hours to a client request, about how your monthly reports are always on time and clients love them, or how you have the industry’s most efficient process for disseminating client K-1s (people hate waiting for those in the mail).

Have you presented a glossed-up testimonial that raves about your merits? No. You’ve complied.

And by the way, testimonials can be phony and everyone knows it. Most of the time, the company being recommended writes it themselves and the client just publishes it in their name. Just being a little bit real with you.

#5 Lacking the Right Disclosures

There are several places where the SEC nailed people on this one (U.S Securities and Exchange Commission, 2017). Advisors compared results to a benchmark, but then did not state how that comparison may have been lacking. Advisors included back-tested results, but then did not explain how they generated those results. And on and on…

Avoid this problem by taking the pain out of updating the slide deck. Have a disclosures page that is easy to update so that routine updates can be performed in-house, yet still be consistent with the brand. We design all our presentations so that any employee can right click and populate the new data with ease. To learn more about how we do this, read “Five Hedge Fund Pitch Book Tips That Make You Look the Part.”

Summing It Up

As we have said before, the best line of defense other than a strong compliance department is a compliance aware marketing professional. We spoke with Kevin Beauregard, owner of Get the Net, who specializes in compliance and business service solutions for the alternative investment industry.

He stated:

Marketing materials must have balance. What is most important is they are consistent with offering documents, due diligence questionnaires, Form ADV IA and IIA, and your newsletter. Your policies and procedures, culture of compliance, and code of ethics need to be consistent as well.

If there are any inconsistencies they could be conceived as fraudulent. With consistent messaging and sound practices in place, your goal should be to shorten the sales cycle.

If it is important to take the pain out of complying with advertising regulations, work with one of the top professionals serving the alternative space. My email is


U.S. Securities and Exchange Commission/Office of Compliance Inspections and Examinations. (2017, Sept 14th). National Exam Program Risk Alert, Volume VI, Issue 6: The Most Frequent Advertising Rule Compliance Issues Identified in OCIE Examinations of Investment Advisors. Retrieved from