SEC Staff Issues Guidance on Model Fees and SRO Disqualifications Under Rule 206(4)-1
On January 15, 2026, the SEC’s Division of Investment Management updated its Marketing Rule FAQ page with two new frequently asked questions addressing issues that have created significant uncertainty for advisers since the rule took effect in November 2022. The first FAQ update tackles the long-debated question of when advisers can use actual fees versus model fees in performance advertising. The second expands the conditional carveout for compensating promoters who have been subject to self-regulatory organization (SRO) disciplinary orders. Together, these updates signal the staff’s continued willingness to provide practical, principles-based guidance and reinforce that Marketing Rule compliance is grounded in facts-and-circumstances analysis, not bright-line rules.
Actual Fees Are Not Automatically Off-Limits
Since the Marketing Rule’s adoption, Footnote 590 of the adopting release has been a source of confusion and consternation across the industry. The footnote appeared to state that if the fees anticipated for an advertisement’s intended audience are higher than the actual fees charged to a portfolio, the adviser “must” use a model fee when presenting net performance. This interpretation seemingly created a blanket prohibition on showing actual-fee net performance in that scenario. Many advisers interpreted this position as a categorical requirement. The new FAQ clarifies that Footnote 590 was not intended to impose a per se prohibition. Instead, whether presenting net performance based on actual fees would violate the Marketing Rule’s general prohibitions depends on all the facts and circumstances of the specific advertisement, including relevant disclosures. The staff further noted that advisers “may use various means to illustrate the effect of differences between actual fees and anticipated fees on performance.” This is welcome relief, but it comes with an important caveat: flexibility is only available to advisers who can demonstrate that their presentation, taken as a whole, is not misleading. Firms should ensure they are documenting their rationale for fee presentation choices and considering whether supplemental disclosures or side-by-side illustrations are appropriate for their audience.
SRO Orders No Longer an Automatic Bar to Paid Testimonials
The Marketing Rule prohibits advisers from compensating anyone for a testimonial or endorsement if that person has been subject to a “disqualifying event” in the prior ten years. Disqualifying events include final orders from SROs such as FINRA. However, the rule already contained a conditional carveout for certain SEC orders: if the SEC didn’t bar or suspend the person, the adviser could still compensate them with appropriate disclosures. There was no equivalent carveout for SRO orders, creating an asymmetry that many practitioners found difficult to justify. The new FAQ closes that gap. The staff will not recommend enforcement action if an adviser compensates a person subject to an SRO final order, provided four conditions are met: the SRO order is the sole basis for the person’s disqualification; the SRO did not expel, suspend, or bar the person from acting in any capacity; the person is in full compliance with the order’s terms (including payment of all fines and disgorgement); and for ten years following the order, any advertisement containing the person’s testimonial or endorsement discloses the order and includes a link to it. This is a practical and logical extension of the existing SEC order carveout. That said, advisers should strengthen their due diligence and onboarding processes for promoters to ensure they can verify compliance with all of these conditions on an ongoing basis.
What Should Advisers Do Now?
These FAQs are consistent with the broader direction the staff has taken over the past year: providing more flexibility under the Marketing Rule, but tying that flexibility to documented, good-faith compliance judgments. Advisers should review their current performance advertising practices to determine whether the model fee FAQ opens up presentation options that were previously considered off-limits and update their policies and procedures accordingly. On the testimonial and endorsement side, firms that work with paid promoters should update their screening and monitoring processes to account for the new SRO carveout and ensure they have systems in place to track order compliance and maintain required disclosures for the full ten-year period. As always, the general prohibitions remain the backstop; any advertisement must not be misleading, regardless of which technical safe harbors apply.