NASAA Series 65, Uniform Investment Adviser Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
An investment adviser representative (IAR) is designing a new website for their firm. To enhance the firm's credibility, the IAR includes a prominent statement on the homepage: 'Registered with the Securities and Exchange Commission, indicating a high level of regulatory approval.' Which of the following best describes this statement's compliance with advertising rules?
- AIt is prohibited, as only state-registered IAs are subject to advertising oversight.
- BIt is prohibited, as it suggests the SEC endorses or approves the firm's services.
- CIt is acceptable, as registration with the SEC does imply a level of oversight.
- DIt is acceptable, provided a disclaimer is included that the SEC does not guarantee performance.
Show answer & explanationAnswer & explanation
Correct answer: B. It is prohibited, as it suggests the SEC endorses or approves the firm's services.
Stating that SEC registration indicates a 'high level of regulatory approval' or suggests endorsement is strictly prohibited. Regulatory registration merely permits an entity to conduct business; it does not imply that the regulator has approved or passed upon the merits of the firm's services or qualifications.
Why the other options are wrong
- A. Both state and federal (SEC) advertising rules govern investment advisers.
- C. While oversight exists, implying 'approval' or 'endorsement' is misleading and prohibited.
- D. A disclaimer about performance does not rectify the misleading implication of regulatory approval.
IA Advertising - Implied Regulatory Approval
Investment advisers are prohibited from advertising in a manner that implies regulatory bodies (like the SEC or state administrators) have approved, endorsed, or passed upon the merits of the adviser's qualifications or services.
- Registration only permits operation, it's not an endorsement.
- Misleading statements about regulatory approval are prohibited.
- Must clearly state 'registration does not imply a certain level of skill or training'.
Memory trick: Don't claim approval, just state your registration, avoid SEC's stern observation!