GIPS Advertising Rules
GIPS Advertisement Definition
An advertisement is any direct or indirect communication an investment adviser makes to more than one person, or to one or more persons if the communication includes hypothetical performance, that:
• offers the investment adviser’s investment advisory services with regard to securities to prospective clients or investors in a private fund advised by the investment adviser, or
• offers new investment advisory services with regard to securities to current clients or investors in a private fund advised by the investment adviser.
Advertisements do not include:
extemporaneous, live, oral communications;
information contained in a statutory or regulatory notice, filing, or other required communication, provided that such information is reasonably designed to satisfy the requirements of such notice, filing, or other required communication; or
a communication that includes hypothetical performance that is provided o in response to an unsolicited request for such information from a prospective or current client or investor in a private fund advised by the investment adviser or o to a prospective or current investor in a private fund advised by the investment adviser in a one-on-one communication.
False or Misleading Information
An adviser should consider the facts and circumstances of each advertisement. The nature of the audience to which the advertisement is directed is a key factor in determining how the general prohibitions should be applied. For instance, the amount and type of information that may need to be included in an advertisement directed at retail investors may differ from the information that may need to be included in an advertisement directed at sophisticated institutional investors. There are seven general prohibitions. In an advertisement, an adviser may not:
include any untrue statement or omit a material fact;
include a material statement of fact that the adviser cannot substantiate;
include information that would likely cause an untrue or misleading implication or inference;
discuss potential benefits to clients without providing fair and balanced treatment of any material risks or limitations;
include specific investment advice that is not fair and balanced;
include or exclude performance results, or time periods, in a manner that is not fair and balanced; or
otherwise be materially misleading.
GIPS Requirement 1.a.7 - False or Misleading Information
The firm must not present performance or performance-related information that is false or misleading. This requirement applies to all performance or performance-related information on a firm-wide basis and is not limited to those materials that reference the GIPS standards. The firm may provide any performance or performance-related information that is specifically requested by a prospective client or prospective investor for use in a one-on-one presentation.
Helpful Hints
As you read the GIPS requirement shown above, this rule applies to all of the marketing/advertising materials created by your firm. Some helpful items are shown below:
GIPS vs SEC Advertisement Definition: According to the SEC Rule 206(4)-1 under the Investment Advisers Act of 1940, an advertisement is defined as, “Any notice, circular, letter, or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, which offers (1) any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (3) any other investment advisory service with regard to securities.”
GIPS defines an advertisement as: Any materials that are designed for use in newspapers, magazines, firm brochures, letters, media, websites, or any other form addressed to one or more prospective clients; anything distributed beyond a one-on-one presentation or an individual client report to maintain existing clients or solicit new clients for a firm is considered an advertisement (anything addressed to more than 1 person).
Rule of Thumb: The Advertising Guidelines pertain to any written material disseminated more broadly to retain existing clients or solicit new clients. If you email/send out the materials without a discussion, then it becomes an advertisement.
Your firm should create a Marketing section of the Policy Manual that should contain a reference on how the firm ensures that no performance or performance-related information that is false or misleading is included in any marketing materials used throughout the firm. Firms must establish controls, policies and procedures to ensure that performance and performance-related information (ie all Marketing materials) does not include false or misleading information.
A firm does not have to prepare all marketing materials in compliance with the GIPS standards. You also do not have to mention anything GIPS related on them. However, you can't provide information that would conflict with the Standards. This means that you can't include linked, non-compliant track records in Marketing materials, that normally wouldn't be in a fully compliant GIPS Report.
A firm has 3 options regarding Advertisements:
Include the fully compliant GIPS Report in any advertisement, of which, the GIPS Report includes all of Advertising requirements
Prepare the advertisement following the GIPS Advertising Guidelines
Make no mention of the GIPS standards
GIPS and the SEC Marketing Rule - Adopted December, 2020
The SEC Marketing Rule addresses requirements that SEC-registered advisers must follow when marketing their services to clients and investors. The Marketing Rule and the accompanying Adopting Release were issued in December 2020, with an effective date of May 4, 2021. Investment advisers must comply with the Marketing Ruleby November 4, 2022 (the compliance date).
*Information is created from a variety/multiple sources of CFA Institute materials.
