NASAA Series 65, Uniform Investment Adviser Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
An investment adviser representative (IAR) is developing a new social media marketing campaign. Which of the following activities would be considered an unethical business practice or a violation of advertising rules under the Uniform Securities Act?
- ASharing hypothetical performance results clearly labeled as such, with all relevant disclosures.
- BProviding educational content about investment concepts without making specific recommendations.
- CPosting a link to a third-party article discussing general market trends without endorsement.
- DFeaturing a testimonial from a current client who was compensated for their endorsement.
Show answer & explanationAnswer & explanation
Correct answer: D. Featuring a testimonial from a current client who was compensated for their endorsement.
Under both state and federal rules, an investment adviser (or IAR) is generally prohibited from publishing, circulating, or distributing advertisements that contain testimonials, especially if the client is compensated, as this could mislead potential clients.
Why the other options are wrong
- A. Hypothetical performance is allowed if properly disclosed and clearly identified as such.
- B. Educational content without specific recommendations is generally permissible and beneficial to clients.
- C. Sharing educational or general market information from third parties is generally permissible if not endorsed as the IAR's own view.
IA Advertising - Testimonials (Prohibited)
Investment advisers are generally prohibited from using testimonials in their advertisements, especially if compensated, as they can be misleading and not representative of all client experiences.
- Prohibited under both federal (SEC) and state (USA) rules.
- Applies to client endorsements or statements of satisfaction.
- Compensation for testimonials is a clear red flag.
- Aims to prevent misleading advertising about performance or service.
Memory trick: Don't Testify, Hypothesize with Care, or Mislead!