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Can investment advisers lie in their advertisements?

On Behalf of | Dec 5, 2022 | Securities Law And Litigation |

Not legally, they can’t. Investment advisers are allowed to advertise in an effort to draw attention to their services. However, their advertisements are regulated. By law, they can’t be materially misleading and must be fair and balanced.

Here are six things these advertisements are not allowed to do:

  • Include a materially false statement or omit a fact that would make a statement misleading
  • Include any material statement of fact the adviser doesn’t have a reasonable basis for believing
  • Include any information likely to mislead the reader
  • Discuss the potential benefits of an adviser’s services without a fair and balanced treatment of the risks and limitations
  • Refer to specific investment advice that is not presented in a fair and balanced way
  • Present performance results or performance time periods that are not fair and balanced

This is a higher standard than simply saying that everything the investment adviser says in an advertisement must be true. A series of true statements can sometimes lead to a false conclusion, so investment advisers have the additional duties not to be misleading and to be fair and balanced in their presentation of information.

Can adviser advertisements contain testimonials, endorsements and third-party ratings?

Yes, but they must still comply with the rules described above. Advisers can’t use these third-party statements or ratings to give a false, misleading or unbalanced impression. They are responsible for making sure that all third-party statements that are used in their advertising themselves comply with the regulations.

Additionally, when advisers use third-party statements, they must include disclaimers. They must disclose whether the statement is from a current client, along with whether that person was paid and whether they have any conflict of interest.

For third-party ratings, advisers must additionally disclose the identity of the third party rating company and whether that company has been compensated.

These disclaimers are meant to help you understand the value of the third-party statement.

Should I trust adviser advertising?

You can generally trust established advisers’ advertising to be truthful, not misleading, fair and balanced. However, you should never make investment decisions based solely on advertising materials.

If you invest based on advertising alone, you risk the possibility of making an inappropriate investment – one that does not meet your stated investment goals and risk tolerance. If you believe you were steered toward inappropriate investments by an adviser or broker-dealer, you may have a legitimate complaint through the Financial Industry Regulatory Authority (FINRA).

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