The SEC updated its Marketing Rule FAQ to address the question of whether advisers are required to calculate a model fee rather than using actual fees, when the fees charged to the intended audience are anticipated to be higher than the actual fees charged. The FAQ highlighted guidance in the adopting release that the general prohibitions in the Marketing Rule are intended to "provide appropriate flexibility and regulatory certainty for advisers considering how to market their investment advisory services" and "[i]n applying the general prohibitions, an adviser should consider the facts and circumstances of each advertisement." Accordingly, the FAQ noted that whether the use of actual fees violates the general prohibitions depends on all of the facts and circumstances of a specific advertisement, including, but not limited to, relevant disclosures. The guidance concluded that advisers may use various means to illustrate the effect of differences between actual fees and anticipated fees on performance. Thus using a model fee to calculate net performance is not the only way to satisfy the rule. We are happy to work with clients to consider the impact of this guidance on performance presentations and related disclosures.

A new FAQ was added to address whether SEC staff would recommend enforcement action if an investment adviser compensates a person for a testimonial or endorsement when that person was subject to the entry of a final order by a self-regulatory organization of the type described in Section 203(e)(9) of the Advisers Act within the prior 10 years but was not barred or otherwise suspended from acting in any capacity under the rules of that self-regulatory organization. While advisers should clearly be cautious about compensating any party with prior regulatory actions against them, the FAQ concludes that the SEC would not recommend enforcement action in such case, provided that:

• The sole reason the person is an ineligible person is the self-regulatory organization’s final order;
• The self-regulatory organization did not expel or suspend the person from membership, bar or suspend the person from association with other members, or prohibit the person from acting in any capacity;
• The person is in compliance with the terms of the self-regulatory organization’s final order, including, but not limited to, paying disgorgement, prejudgment interest, civil or administrative penalties, and fines; and
• For a period of 10 years following the date of such final order, any advertisement containing the testimonial or endorsement discloses that the person providing the testimonial or endorsement is subject to a self-regulatory organization order, and includes the order, or a link to the order on the self-regulatory organization’s website or other public disclosure system, if available.