You’re ready to advertise. You know the basics, you can handle the complexities of including past specific recommendations, and even understand how to appropriately include client testimonials. Let the advertising campaign commence! Well, not so fast. Even if you’ve successfully managed all of the potential pitfalls we’ve discussed so far, you must still contend with the “catch all” restriction, which prohibits any false or misleading disclosure in a robo-adviser’s advertising.

As a reminder, the primary rule governing robo-adviser advertising is Rule 206(4)-1 under the Investment Advisers Act of 1940 (the “Advertising Rule”). The Advertising Rule broadly prohibits any adviser advertising that includes “any untrue statement of a material fact, or which is otherwise false or misleading”. On its face, this prohibition appears relatively straightforward. However, there is a bit to unpack here.

First, the Advertising Rule broadly defines an “advertisement” to include any communication addressed to more than one person that offers any of the following services:

  1. Any analysis, report, or publication regarding securities;
  2. Any graph, chart, formula or other device for making securities decisions; or
  3. Any other investment advisory services with regard to securities.

Second, the question of whether an advertisement is false or misleading will depend on the particular facts and circumstances surrounding its use, including:

  1. The form and the content of the advertisement;
  2. The implications or inferences arising out of the advertisement in its total context; and
  3. The sophistication of the prospective client.

As you can see, the prohibition against false or misleading advertising is extensive, and regulators often take a broad interpretation of the prohibition when reviewing an adviser’s advertising and accompanying disclosure. For your robo-adviser firm, this prohibition may be most relevant to the disclosure contained on your website or client facing portal such as your app or other intake medium.

We recommend that, as a matter of best practice, you conduct a regular review of any client facing advertising materials, including your website, to screen for claims that cannot be substantiated. Some common examples of these may be statements describing your investment strategy as “one-of-a-kind”, or claims that your services will help clients grow assets. While these examples may seem obvious, it is important to again note that whether something is false or misleading is a determination that needs to be made on a case-by-case basis. A good metric for determining whether a statement is appropriate is to look at it from the point of view of a retail investor. Statements on your website, particularly regarding strategy or performance, may seem fine to you but may be viewed very differently by a regulator.