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Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Rules and Regulations
indirectly, to the person for the testimonial or endorsement; and iii A description of any material conflicts of interest on the part of the person giving the testimonial or endorsement resulting from the investment advisers relationship with such person and/or any compensation arrangement.
2 Adviser oversight and compliance.
The investment adviser must have:
i A reasonable basis for believing that the testimonial or endorsement complies with the requirements of this section, and ii A written agreement with any person giving a testimonial or endorsement that describes the scope of the agreed-upon activities and the terms of compensation for those activities.
3 Disqualification. An investment adviser may not compensate a person, directly or indirectly, for a testimonial or endorsement if the adviser knows, or in the exercise of reasonable care should know, that the person giving the testimonial or endorsement is an ineligible person at the time the testimonial or endorsement is disseminated. This paragraph shall not disqualify any person for any matters that occurred prior to May 4, 2021, if such matters would not have disqualified such person under 275.20643a1ii of this chapter, as in effect prior to May 4, 2021.
4 Exemptions. i A testimonial or endorsement disseminated for no compensation or de minimis compensation is not required to comply with paragraphs b2ii and 3 of this section;
ii A testimonial or endorsement by the investment advisers partners, officers, directors, or employees, or a person that controls, is controlled by, or is under common control with the investment adviser, or is a partner, officer, director or employee of such a person is not required to comply with paragraphs b1 and 2ii of this section, provided that the affiliation between the investment adviser and such person is readily apparent to or is disclosed to the client or investor at the time the testimonial or endorsement is disseminated and the investment adviser documents such persons status at the time the testimonial or endorsement is disseminated;
iii A testimonial or endorsement by a broker or dealer registered with the Commission under section 15b of the Securities Exchange Act of 1934 15
U.S.C. 78oa is not required to comply with:
A Paragraph b1 of this section if the testimonial or endorsement is a recommendation subject to 240.15l1

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of this chapter Regulation Best Interest under that Act;
B Paragraphs b1ii and iii of this section if the testimonial or endorsement is provided to a person that is not a retail customer as that term is defined in 240.15l1 of this chapter Regulation Best Interest under the Securities Exchange Act of 1934 15
U.S.C. 78oa; and C Paragraph b3 of this section if the broker or dealer is not subject to statutory disqualification, as defined under section 3a39 of that Act; and iv A testimonial or endorsement by a person that is covered by rule 506d of Regulation D under the Securities Act of 1933 230.506d of this chapter with respect to a rule 506 securities offering under the Securities Act of 1933
230.506 of this chapter and whose involvement would not disqualify the offering under that rule is not required to comply with paragraph b3 of this section.
c Third-party ratings. An advertisement may not include any third-party rating, unless the investment adviser:
1 Has a reasonable basis for believing that any questionnaire or survey used in the preparation of the third-party rating is structured to make it equally easy for a participant to provide favorable and unfavorable responses, and is not designed or prepared to produce any predetermined result; and 2 Clearly and prominently discloses, or the investment adviser reasonably believes that the third-party rating clearly and prominently discloses:
i The date on which the rating was given and the period of time upon which the rating was based;
ii The identity of the third party that created and tabulated the rating; and iii If applicable, that compensation has been provided directly or indirectly by the adviser in connection with obtaining or using the third-party rating.
d Performance. An investment adviser may not include in any advertisement:
1 Any presentation of gross performance, unless the advertisement also presents net performance:
i With at least equal prominence to, and in a format designed to facilitate comparison with, the gross performance; and ii Calculated over the same time period, and using the same type of return and methodology, as the gross performance.
2 Any performance results, of any portfolio or any composite aggregation of related portfolios, in each case other than any private fund, unless the
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advertisement includes performance results of the same portfolio or composite aggregation for one-, five-, and ten-year periods, each presented with equal prominence and ending on a date that is no less recent than the most recent calendar year-end; except that if the relevant portfolio did not exist for a particular prescribed period, then the life of the portfolio must be substituted for that period.
3 Any statement, express or implied, that the calculation or presentation of performance results in the advertisement has been approved or reviewed by the Commission.
4 Any related performance, unless it includes all related portfolios; provided that related performance may exclude any related portfolios if:
i The advertised performance results are not materially higher than if all related portfolios had been included;
and ii The exclusion of any related portfolio does not alter the presentation of any applicable time periods prescribed by paragraph d2 of this section.
5 Any extracted performance, unless the advertisement provides, or offers to provide promptly, the performance results of the total portfolio from which the performance was extracted.
6 Any hypothetical performance unless the investment adviser:
i Adopts and implements policies and procedures reasonably designed to ensure that the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement;
ii Provides sufficient information to enable the intended audience to understand the criteria used and assumptions made in calculating such hypothetical performance; and iii Provides or, if the intended audience is an investor in a private fund, provides, or offers to provide promptly sufficient information to enable the intended audience to understand the risks and limitations of using such hypothetical performance in making investment decisions; Provided that the investment adviser need not comply with the other conditions on performance in paragraphs d2, 4, and 5 of this section.
7 Any predecessor performance unless:
i The person or persons who were primarily responsible for achieving the prior performance results manage accounts at the advertising adviser;
ii The accounts managed at the predecessor investment adviser are sufficiently similar to the accounts
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