Executive Summary
The Securities and Exchange Commission’s Division of Examinations has issued a new Risk Alert highlighting continued and widespread deficiencies in registered investment advisers’ compliance with Rule 206(4)-1 (the “Marketing Rule”) under the Investment Advisers Act of 1940 (the “Advisers Act”), particularly regarding testimonials, endorsements, and third-party ratings. Despite the rule’s multi-year implementation period, examiners continue to observe failures in disclosure, oversight, due diligence, and documentation.
The Alert underscores that Marketing Rule compliance is no longer treated as a transitional obligation. Instead, it is now firmly embedded in the SEC’s core examination program, and deficiencies often implicate not only the Marketing Rule but also the Compliance Rule and the Books and Records Rule, compounding regulatory risk. As a result, advisers who rely on client reviews, referral arrangements, social media influencers, or third-party awards should reassess their marketing programs immediately.
Regulatory Context
The Marketing Rule modernized long-standing advertising restrictions under the Advisers Act, permitting advisers to use testimonials, endorsements, and third-party ratings, subject to meeting specific conditions. The SEC has repeatedly emphasized that these permitted practices are conditional and require the adviser to maintain ongoing compliance oversight.
This latest Alert builds on earlier SEC examination guidance. It reflects the staff’s continued concern that many advisers have adopted marketing practices faster than they have implemented the necessary compliance infrastructure, based on observations from SEC examinations of advisers’ use of testimonials, endorsements, and third-party ratings in advertisements distributed to current or prospective clients, including private fund investors.
While the Marketing Rule was adopted in late 2020, the SEC’s findings underscore that many firms still treat marketing compliance as a disclosure exercise rather than a supervised compliance function. To that end, a recurring theme throughout the Alert is not merely missing language but structural compliance breakdowns: advisers failing to recognize that certain arrangements constitute endorsements, failing to document a reasonable basis for believing disclosures were made, or adopting policies that are never operational.
Common Failures and Regulatory Risk
Testimonials and Endorsements: Demonstrating compliance with the Testimonials and Endorsements provisions remains a significant challenge for advisers. Examiners repeatedly observed testimonials and endorsements, often on adviser websites, d/b/a pages, or social media platforms, that lacked clear and prominent disclosures at the time of dissemination.
Common deficiencies included failures to disclose:
- Whether the promoter was a current client or investor,
- Whether compensation was provided (cash or non-cash),
- The material terms of compensation arrangements, and
- Material conflicts of interest arising from financial or business relationships.
Notably, the Alert emphasized that hyperlinked disclosures do not satisfy the “clear and prominent” standard. Disclosures must appear alongside the testimonial or endorsement itself and be at least as prominent as the statement being promoted. RIAs that relied on third-party review sites or embedded external reviews on their websites were frequently unable to demonstrate compliance with these requirements.
Oversight failures were equally concerning. Many advisers lacked written agreements with paid promoters, misunderstood the de minimis compensation threshold, or failed to document a reasonable basis for believing promoters complied with disclosure obligations. In some cases, advisers compensated ineligible individuals, including those with disqualifying disciplinary histories, without adequate vetting or ongoing monitoring.
Third-Party Ratings: The Alert also highlights persistent weaknesses in advisers’ use of third-party ratings. While many firms prominently display awards, rankings, or badges, examiners found that advisers often failed to conduct or document the required due diligence on how ratings were generated.
Advisers must have a reasonable basis for believing that questionnaires or surveys used in third-party ratings were structured to permit unbiased responses and were not designed to produce predetermined outcomes. Examiners observed firms that:
- Did not obtain or review rating methodologies,
- Relied solely on marketing representations from rating providers, or
- Lacked internal procedures for rating due diligence.
Disclosure failures were again common. Advisers frequently omitted required information, such as:
- The date and period of the rating,
- The identity of the rating provider,
- Whether compensation was paid for the rating, logo usage, enhanced placement, or referrals.
The SEC made clear that indirect payments, such as for priority placement or logo licensing, trigger disclosure obligations. Using hyperlinks, footnotes, or small-font disclosures at the bottom of a webpage did not satisfy the clear and prominent standard.
Practical Compliance Takeaways for RIAs
This Alert reinforces that Marketing Rule compliance must be systemic, documented, and supervised. Advisers should expect examiners to request:
- Written marketing policies tailored to testimonials, endorsements, and ratings,
- Promoter agreements and compensation records,
- Due diligence files for third-party ratings,
- Evidence supporting a reasonable basis for belief determinations, and
- Books and records that demonstrate ongoing oversight.
Firms that rely on marketing vendors, referral networks, or social media influencers face heightened risk when compliance responsibilities are informally delegated without verification.
Action Items
Registered investment advisers should treat this Alert as a prompt to conduct an immediate self-assessment. Firms should inventory all marketing content, reassess promoter relationships, and test whether disclosures, agreements, and oversight practices would withstand SEC examination scrutiny. Proactive remediation, before the next SEC exam, can significantly reduce regulatory exposure.