On Jan. 15, 2026, the Staff of the Securities and Exchange Commission updated the FAQ page pertaining to Rule 206(4)-1 (the Marketing Rule) under the Investment Advisers Act of 1940. The updated guidance provides potential flexibility for advisers to show actual fees in calculating net performance even when those fees were lower than the fees to be charged. In addition, subject to certain conditions, firms may compensate individuals for testimonials and endorsements even when the individuals are subject to a “disqualifying event.”
The Staff has been active over the last year in providing needed interpretive and compliance guidance, including a Risk Alert issued by the Division of Examinations describing the Staff’s observations regarding registered investment advisers’ compliance with the testimonials and endorsement provisions and the third-party rating provisions of the Marketing Rule.
January FAQ: Actual Fees vs. Model Fees
One of the core Marketing Rule requirements provides that advisers that include performance figures in their advertisements must generally show “net performance” that includes the deduction of either the (i) fees and expenses actually paid by a client or investor, and/or (ii) the portfolio’s performance after the deduction of a model fee.
In part due to a footnote in the Marketing Rule Adopting Release, the industry has understood the Marketing Rule to require that a model fee be used if the actual fees charged historically are lower than the fees to be charged to investors. For example, where an adviser may be showing previous non-fund performance with fees lower than the 2/20 model, the adviser would need to calculate net performance for potential fund investors to show the impact of the 2/20 fee structure.
In the January FAQ update, the Staff stated that the Marketing Rule does not categorically require the use of a model fee in this circumstance. Rather, “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.”
January FAQ: Testimonial and Endorsement Compensation
The Marketing Rule prohibits registered advisers from compensating a person for a testimonial or endorsement if the adviser knows, or in the exercise of reasonable care should know, that the person is ineligible at the time the testimonial or endorsement is disseminated due to a “disqualifying event” generally in the last 10 years.
In the January FAQ update, the Staff stated that it would not recommend enforcement action to the commission if an investment adviser compensates a person for a testimonial or endorsement who the adviser knows, or in the exercise of reasonable care should know, was subject to the entry of a final order by a self-regulatory organization that does not result in a bar or suspension of the individual from the securities industry provided that:
- The sole reason the person is an ineligible person (as defined in the Marketing Rule) 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 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.
December Risk Alert: Testimonials and Endorsements
Relatedly, in December 2025, the Division of Examinations issued a Risk Alert addressing observations regarding advisers’ satisfaction of disclosure requirements and oversight and compliance practices for testimonials and endorsements, as well as advisers’ due diligence and disclosure requirements regarding third-party ratings. The Risk Alert provides useful reminders for compliance with these provisions and some insight into the Staff’s focus areas on examinations.
In the Risk Alert, the division noted that it had observed in examinations with some frequency that endorsements or testimonials failed to include the required clear and prominent disclosures at the time of dissemination. The Staff observed, for example, registered advisers that did not disclose the material terms of compensation arrangements or provided generic disclosure that omitted certain material information (i.e., disclosing that social media influencers received compensation from advisers for client referrals but omitting the terms of the referral payments).
Additionally, the Staff observed advisers that did not disclose material conflicts resulting from the advisers’ relationships with promoters and/or the compensation arrangements. For example, advisers failed to ensure that disclosures were made where promoters had financial interests in the advisers they promoted (e.g., promoters who were also clients and investors in the adviser).
The Staff observed advisers that were unable to demonstrate that they satisfied the reasonable basis for belief requirements because the advisers’ compliance policies and procedures, written agreements with promoters and/or other documentation did not enable the adviser to satisfy the reasonable basis for the belief requirement. The Staff also observed advisers that did not enter into or maintain written agreements with promoters that described the scope of the activities and terms of compensation or did not fully describe these terms. In some cases, advisers did not meet the requirements of the exemption for de minimis compensation because the adviser incorrectly considered whether each instance of compensation to a promoter was under the limit instead of the cumulative amount of compensation over a 12-month period.
The Staff also observed advisers that appeared not to comply with the prohibition on compensating ineligible persons for endorsements when the adviser knew, or should have known, the promoter was ineligible. For example, promoters received compensation who were disqualified due to their disciplinary histories with state securities regulations.
December Risk Alert: Third-Party Rating Provisions
The December Risk Alert also included observations regarding advisers’ compliance with the Marketing Rule’s prohibition on the use of third-party ratings in advertisements unless an adviser has a reasonable basis for believing that the rating meets certain criteria and discloses certain information.
The Staff observed advisers that did not appear to have sufficient information to form a reasonable basis about the design or structure of questionnaires used in the preparation of third-party ratings included in advertisements. The advisers had neither developed policies and procedures for satisfying the due diligence requirement, nor had the advisers taken steps to meet this requirement, such as reviewing a copy of the questionnaires or surveys.
The Staff further observed advisers that included third-party ratings in advertisements without providing some or all of the required clear and prominent disclosures. For example, advisers failed to provide required disclosures when linking to third-party websites that contained ratings. Additionally, advisers did not provide the required disclosures in a clear and prominent manner, including using hyperlinks for the disclosures that were required to be “clear and prominent,” using smaller text font for disclosures, and placing the disclosures at the bottom of the website pages away from the actual ratings.
McGuireWoods continues to monitor developments regarding the Marketing Rule. Our team stands ready to assist. For questions about compliance with the Marketing Rule and related matters, contact the authors of this article or another member of McGuireWoods’ private investments funds team.