NASAA Series 63Communication with Customers and ProspectsMedium
A state-registered investment adviser (IA) maintains a public-facing website that includes a section for client testimonials. The testimonials praise the IA's performance and service. Under the Uniform Securities Act (USA), how should the IA handle these testimonials?
- AThe IA is generally prohibited from using client testimonials in advertisements.
- BThe IA may display the testimonials only if they are from accredited investors and are unedited.
- CThe IA may display the testimonials if they are accompanied by a prominent disclaimer stating that past results are not indicative of future performance.
- DThe IA may display the testimonials if they are verified by an independent third party.
Show answer & explanationAnswer & explanation
Correct answer: A. The IA is generally prohibited from using client testimonials in advertisements.
Under the Uniform Securities Act (USA), state-registered investment advisers are generally prohibited from using testimonials in their advertisements. This prohibition is designed to prevent misleading or biased information that could influence potential clients.
Why the other options are wrong
- B. The type of investor or editing status does not exempt testimonials from the general prohibition under the USA.
- C. Disclaimers do not cure the prohibition on testimonials for state-registered IAs under the USA.
- D. Independent verification does not overcome the fundamental prohibition against testimonials for state-registered IAs under the USA.
IA Testimonial Prohibition (USA)
The Uniform Securities Act generally prohibits state-registered investment advisers from using testimonials in their advertisements.
- Aims to prevent misleading advertising.
- Applies to all forms of advertisement, including websites and social media.
- Differs from federal (SEC) rules which have conditions for testimonials.
Memory trick: No Praises from Clients for State Advisors.