How the SEC’s New Marketing Rule Affects Investment Advisors’ Advertising Awards and Third-Party Ratings

On December 22, 2020, the Securities and Exchange Commission (“SEC”) announced new rules regarding advertising and marketing for investment advisors.[1] The SEC passed the new rules to synthesize and modernize their “Advertising Rule” and “Cash Solicitation Rule” into a new, singular rule designed to regulate investment advisers’ marketing communications.[2] This new rule, 206(4)-1, also known as the “Marketing Rule,” applies to all advertisements. The SEC provided a new definition of what an advertisement is under the Marketing Rule.[3] The revised definition of advertisement has two parts:

First, the definition includes any direct or indirect communication an investment adviser makes that: (i) offers the investment adviser’s investment advisory services with regard to securities to prospective clients or private fund investors, or (ii) offers new investment advisory services with regard to securities to current clients or private fund investors. The first prong of the definition excludes most one-on-one communications and contains certain other exclusions.

Second, the definition generally includes any endorsement or testimonial for which an adviser provides cash and non-cash compensation directly or indirectly (e.g., directed brokerage, awards or other prizes, and reduced advisory fees).[4]

Following the definition, which now includes endorsements or testimonials that promote awards won by the investment advisor, the SEC lists prohibitions.[5] The Marketing Rule prohibits advertisements, “including or excluding performance results, or presenting performance time periods, in a manner that is not fair and balanced.”[6] SEC-registered investment advisors (“RIAs”) must follow the standards set by the Marketing Rule and transition their advertisement of awards won and their performance results. The SEC provided an 18-month transitional period for SEC-registered investment advisors to conform to the new Marketing Rule.[7] The 18-month window closed on November 4, 2022, and the SEC now requires full adherence to the rules.[8]

RIAs seeking to promote third-party ratings, rankings, awards, and performance results through advertisements and social media are directly impacted by this new rule. The SEC dedicated an entire section to third-party ratings in its issuing release, so it is essential for RIAs to be in compliance. The SEC states Rule 206(4)-1(c) will “prohibit an investment adviser from including a third-party rating in an advertisement unless certain conditions are met.”[9] Because of the SEC’s consideration of third-party ratings and awards as advertisements, the advertisement must follow general prohibitions.[10]

The Marketing Rule prohibits making untrue statements of material fact. If the third-party rating entity is credible and the advisor does not use the rating inappropriately, then the prohibitions can be avoided.[11] If the RIC plans to advertise one kind of service when the rating is for another kind of service, the Marketing Rule prohibitions apply.[12]

Additionally, a third-party rating agency providing the rating or award must generate ratings as part of their normal course of business.[13] The RIA also must fulfill two requirements to show the third-party rating or award is presented equally. First, they must show due diligence. The RIA must “have a reasonable basis that any questionnaire or survey used in the preparation of the third-party rating is structured to make it equally easy for a participant to provide favorable and unfavorable responses, and is not designed or prepared to produce any predetermined result.”[14] To comply with the due diligence requirements, RIAs can look at the rating methodology and show the rating is not one-sided or seek representations from the third-party rating agency regarding general aspects of how the survey or questionnaire is designed, structured, and administered. Alternatively, a third party rating provider may publicly disclose similar information about its survey or questionnaire methodology.

The second requirement is disclosure.[15] The RIA must disclose, or ensure the third-party rater has disclosed the date the rating was given, the identity of the third-party that created and tabulated the rating, and if compensation has been provided directly or indirectly by the adviser in connection with obtaining or using the third-party rating.[16] When presenting the rating, the RIA must ensure these disclosures are presented with equal prominence as the rating itself.[17] With the additional attention of the due diligence and disclosure requirements of the Marketing Rule, promoting ratings and awards continue to be possible as long as they are credible.[18]

With the SEC’s focus on solicitation activity regarding awards and ratings, it is imperative of RIAs to review and update their policies and procedures for the publication of awards on their websites, communications, and social media. Given the complexity of the Marketing Rule and the scrutiny of advertising practices, investment advisers should be fully engaged in implementing new policies for their advertisements in compliance with the Marketing Rule.

[1] SEC Adopts Modernized Marketing Rule for Investment Advisers, U.S. Securities and Exchange Commission, (Dec. 22, 2020),

[2] Scott L. Beal, Kerry Potter McCormick, Scott Budlong, Travis Ortiz, Paige McHugh, Compliance Date Approaching For New Marketing Rule For Investment Advisers, Vol. XII, The National Law Review, 319 (2022)

[3] Id.

[4] SEC Adopts Modernized Marketing Rule for Investment Advisers, supra note 1.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] 17 CFR Part 275 and 279.

[10] Benjamin Bishop, SEC Marketing Rule: Implications for news releases that promote third-party ratings and rankings, Lowe Group Financial Communications, (Aug. 3, 2022),

[11] Id.

[12] Id.

[13] Id.

[14] 17 CFR Part 275 and 279.

[15] Id.

[16] Id.

[17] Id.

[18] Benjamin Bishop, supra note 10.

Opportunity for U.S. Backed Digital Currency

Cryptocurrency (“Crypto”) is an easily accessible digital asset used for financial transactions.[1] Crypto has become a source of payment on virtual platforms and utilizes blockchain technology.[2] While digital transactions eliminate the need for intermediaries such as banks, credit card companies, or third-party payment processors, it is an unregulated and volatile field.[3] The recent events with FTX highlight this issue.

The use of Crypto rose globally at an unprecedented rate during the COVID-19 pandemic.[4] Developing countries in particular accounted for 15 of the top 20 economies in 2021 using Crypto.[5] One of the most notable countries attempting to adopt Crypto is El Salvador. In 2021, El Salvador became the first country in the world to recognize Bitcoin as legal tender.[6] As such, El Salvador attempted to turn an impoverished area around the Conchagua volcano into a Bitcoin City.[7] The President of El Salvador, Nayib Bukele, hoped to create a futuristic metropolis from Crypto using the Conchagua volcano as a geothermal plant.[8] Unfortunately, President Bukele invested $100 million of government funds into Bitcoin when prices peaked, which led to a further debt crisis in El Salvador. One of the issues El Salvador and other developing countries have run into with the use of Crypto as legal tender is the volatility of the market. Since 2021, Bitcoin has dropped 61%, and El Salvador is likely to default on its debts in the next few years due to the dramatic drop in value.[9] The price of Crypto is open to fluctuation, fraud, and tax evasion due to the lack of regulation and backing by a central bank or government.[10]

One solution that has been proposed to bring stability to the Crypto market is a Central Bank Digital Currency (“CBDC”), which is a digital token, similar to Crypto, issued by a central bank. In the United States, the digital form of the token would be the equivalent of the U.S. dollar.[11] President Biden and the Federal Reserve are evaluating the creation of a U.S. CBDC and how it would work alongside the existing form of physical currency.[12]

The benefits of a U.S.-issued CBDC include privacy-protected digital currency, improvements to cross-border payments, and support to the U.S. dollar’s international role.[13] A U.S. CBDC would offer access to digital money that is free from credit and liquidity risks, unlike money held in a traditional bank.[14] Currently, Federal Reserve notes are the only central bank money available to the public. The use of a CBDC would provide a cheaper, faster form of transferring money and bring people who do not have bank accounts into the financial market.[15]

The dollar is the world’s most widely used currency for payments and investment.[16] A CBDC would expand the U.S. economy by creating a financial market with the global use of a CBDC.[17] Recently, China introduced its own CBDC, which may decrease the demand for the U.S. dollar abroad. The creation of a U.S. CBDC would allow competition on a global scale with China and other countries that have developed a digital currency backed by their central bank.[18]

Despite the benefits to the U.S. consumer and the global financial system, a U.S. CBDC has several issues. Many Americans actively use and prefer cash.[19] Additionally, there are privacy issues with digital currency. A Federal Reserve-backed CBDC system would allow the central bank to see every user transaction.[20] Additionally, banks have questioned the legal authority of the Federal Reserve to issue a digital currency without authorization from Congress.[21]

The White House, the Office of Science and Technology Policy, and the National Science Foundation continue to work on the National Digital Assets Research and Development Agenda.[22] The Executive Branch has placed a high priority on advancing research concerning Crypto and how it could provide financial inclusion and equity to Americans.[23]  While the benefits of a U.S. CBDC are plentiful, there are many moving parts to the initiation of a central bank backed digital currency in the United States. However, even with the lack of regulation and its volatile nature, Crypto is not going away. Crypto provides businesses and consumers with easily transferable, convenient, less expensive means of transferring money.[24] A U.S. backed stable coin may provide such stability. Clearly, the U.S. would not want the European Union or another Western power to issue such a coin and undermine the U.S. leadership in global currencies.


[1] Molly Mastantuono, Cryptocurrency 101: A Guide to Digital Dollars (Dec. 17, 2021),

[2] Id.

[3] Id.

[4] UN trade body calls for halting cryptocurrency rise in developing countries, United Nations (Aug. 10, 2022),

[5] Id.

[6] Joe Hernandez, El Salvador Just Became The First Country To Accept Bitcoin As Legal Tender, NPR (Sept. 7, 2021),

[7] Zeke Faux, El Salvador’s $300 Million Bitcoin ‘Revolution’ Is Failing Miserably (Nov. 4, 2022),

[8] Id.

[9] Id.

[10] UN trade body calls for halting cryptocurrency rise in developing countries, supra note 4.

[11] Dr. Alondra Nelson, Alexander Macgillivray, Nik Marda, Technical Possibilities for a U.S. Central Bank Digital Currency (Sept. 16, 2022),

[12] Money and Payments: The U.S. Dollar in the Age of Digital Transformation, Board of Governors of the Federal Reserve System (Jan. 2022),

[13] Money and Payments: The U.S. Dollar in the Age of Digital Transformation, supra note 12.

[14] Id.

[15] Andrew Ackerman, What is a Central Bank Digital Currency and Should the U.S. Issue it? (May 26, 2022),

[16] Money and Payments: The U.S. Dollar in the Age of Digital Transformation, supra note 12.

[17] Id.

[18] Boucher, supra note 16.

[19] Andrew Ackerman, Fed Launches Review of Possible Central Bank Digital Currency (Jan. 20, 2022),

[20] Id.

[21] Id.

[22] Money and Payments: The U.S. Dollar in the Age of Digital Transformation, supra note 12.

[23] Id.

[24] Shobhit Seth, What is a Central Bank Digital Currency (CBDC)?, Mar. 9, 2022,

SEC ad rule may affect use of interactive analysis tools

The new SEC advertising rule 206(4)-1 addresses the use of “interactive analysis tools” commonly used by investment advisers. In a recent article appearing in Regulatory Compliance Watch, Pastore associate attorney Paul Fenaroli weighs in on how this rule may affect the way advisers use these tools with their clients.

Read the article here

Source: Regulatory Compliance Watch, October 3, 2022. (

Pastore Defeats Motion to Compel Arbitration

In a decision issued November 9, 2022, the Connecticut Superior Court upheld Pastore’s position against a nationally recognized broker-dealer, holding that a FINRA arbitration provision agreed to by one’s parent does not bind a person that seeks to invalidate that very agreement. As the Court stated, plaintiff’s claims “are personal to her based on alleged tortious and illegal conduct directed toward harming her as a putative beneficiary, not her mother’s interests as the account holder.” The decision strengthens Connecticut’s strong policy against enforcing arbitration agreements against those who have not themselves agreed to arbitrate disputes.

Pastore regularly enforces and defends FINRA arbitration provisions, and is familiar with the intricacies of compelling parties to arbitrate disputes when they have so agreed.

Pastore partner recieves recognition by the American Lawyer and Martindale-Hubbell

Joseph Pastore, the chairman of Pastore LLC, has been named a 2023 Top Rate litigator nationally by the American Lawyer and has received recognition as 2023 AV Preeminent from Martindale- Hubbell. Both publications evaluate attorneys from around the country using independent criteria.