NASAA proposes model rule to align states with SEC marketing rule

The North American Securities Administrators Association last week approved a model rule recommending that state securities regulators align state adviser marketing laws with the Securities and Exchange Commission’s 2020 marketing rule. The model rule is a recommendation for states to consider; it does not change state law.

The SEC adopted the marketing rule in 2020 and began enforcing it around 2022. The federal rule broadened the definition of an advertisement to any message sent to two or more current or prospective clients about advisory services, while exempting one-on-one communications. It allowed client testimonials and third‑party endorsements in marketing materials, set standards for reporting past investment performance and permitted certain investment projections.

The NASAA proposal responds to advisers who have begun using the SEC rule to include testimonials and endorsements on websites and in other materials. NASAA and supporters say aligning state rules with the federal standard could reduce differences in enforcement for firms that operate in multiple states.

The SEC requires registered investment advisers with $110 million or more in assets under management to register with the agency. Firms with $100 million to $110 million may choose federal or state registration. Advisers with less than $100 million must register at the state level.

Jaclyn Bowdren, chief operating officer of compliance consultant CRC‑Oyster, noted, “States have different rules on when you can just defer to your federal registration. Some say, ‘That’s great that you’re federally registered there, but you’re also registered here, and this is how we interpret it.’ So it does still require that analysis to determine, ‘Do we have some additional burden at the state level?'” She said many firms seek SEC registration when eligible to limit overlapping state requirements.

Verification requirements have limited adoption of testimonials. Firms must confirm endorsements come from actual clients and ensure statements are not misleading. Joe Anthony, CEO of marketing firm Gregory, observed, “Testimonials have to be checked to ensure that they come from clients of a given advisor and don’t contain misinformation.” He added larger firms may face higher resource demands to verify endorsements across many advisers.

The SEC issued a risk alert in December that highlighted common marketing missteps, including failures to disclose when money changed hands for endorsements and use of inadequate disclosures such as tiny footnotes or low‑visibility hyperlinks. The alert advised firms to make disclosures clear and conspicuous and warned that certain technological shortcuts may not meet the requirement.

The NASAA model rule leaves final decisions to state legislatures and regulators. States may adopt, modify or reject the recommendation; any change in state practice will depend on those individual actions.