Marketing rule missteps that could put advisory firms at risk

More than five years after the U.S. Securities and Exchange Commission rolled out its updated marketing rule, regulators are making one thing clear: It's no longer enough to simply have policies in place. Firms are increasingly expected to demonstrate that they are actively following them.

A December risk alert from the SEC's Division of Examinations highlights where many advisors are still falling short, particularly when it comes to testimonials, endorsements and third-party ratings. The message, according to compliance experts, is straightforward: What may seem like minor marketing oversights can quickly become regulatory problems.

"It's not a free pass anymore," said Victoria Olson DeLucia, director of institutional engagement at compliance consulting firm Confluence. "Firms are actively being written up."

At the core of the rule is a familiar concept with sharper edges: Advisors must present a full and fair picture to investors and avoid anything that could create a misleading impression. The risk alert shows just how often firms miss that mark.

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Disclosures that aren't clear — or aren't there at all

One of the most common issues regulators flagged is the failure to provide clear and prominent disclosures alongside testimonials and endorsements.

In many cases, firms included disclosures, but not in a way that met the rule's standard. Some were buried in fine print or placed behind hyperlinks — practices the SEC explicitly called out as insufficient.

The disclosures "shouldn't be buried in a footnote in a light font, something that someone is going to overlook when they're materially relevant to the content that's being discussed," DeLucia said.

Other firms failed to disclose key facts altogether, such as whether a testimonial came from a current client or whether the person providing it was compensated. That's especially problematic when compensation — even non-cash compensation like gift cards — creates a potential conflict of interest.

The SEC also observed firms offering "refer-a-friend" incentives or encouraging clients to post online reviews without ensuring the required disclosures were included.

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Misunderstanding what counts as a paid endorsement

A recurring theme in the risk alert is that many firms don't fully recognize when they've entered into a promotional relationship.

That can include obvious arrangements, like paying a marketing firm or influencer. But it also extends to more subtle scenarios, such as providing small incentives for client reviews or paying to be listed on referral websites.

While referral platforms like Ramsey Solutions, where advisors pay to be listed and matched with prospective clients, fall outside the SEC's direct regulatory scope, the advisors who choose to participate are still fully subject to the marketing rule. That creates a unique compliance burden: Advisors must effectively review the platform and ensure the required disclosures are being made, even if they don't control the website.

In practice, that means evaluating whether the platform clearly explains that advisors are paying to be included and that the listings are not a comprehensive or unbiased universe of options. If those disclosures are missing or insufficient, DeLucia said the responsibility ultimately falls back on the advisor, not the platform.

"Folks don't always associate this with being a paid endorsement or a paid promoter relationship, because you're thinking, 'Oh, I'm paying for their maintenance,'" DeLucia said. "The SEC doesn't care what reason you're paying them. There is money being exchanged, and they consider that to be relevant. … It's part of the material facts."

The SEC also flagged cases where firms incorrectly relied on the "de minimis" exemption for compensation under $1,000, even when total payments exceeded that threshold over a 12-month period.

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Third-party ratings: A compliance minefield

If testimonials and endorsements are one area of concern, third-party ratings may be even more complicated.

The risk alert highlights widespread issues with how firms use ratings and awards in their marketing materials, from failing to conduct proper due diligence to omitting key disclosures.

In an anonymized noncompliant marketing example provided by DeLucia, the firm illustrates two frequent trouble spots: inadequate disclosures and misrepresentation of rating methodologies.

"What they've said in this risk alert is … you can't link to the third-party website and have that meet the requirements that we're expecting," Delucia said. "You need to embed that information right into the advertisement."

Firms are also expected to complete due diligence of the rating service itself, to determine if the agency has the necessary expertise to effectively rank submissions. As with referral sites, the SEC does not have direct oversight of ratings agencies, but they nevertheless require advisors to ensure that any ratings they participate in adhere to the SEC's standards.

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Recordkeeping and substantiation gaps

Beyond disclosures, the risk alert highlights another critical expectation: Firms must be able to quickly substantiate their marketing claims.

That includes maintaining records of any information submitted for awards or ratings, as well as documentation supporting statements made in advertisements.

"The rule requires that the firm be able to substantiate on demand," DeLucia said.  "A standard SEC examination, when that document request comes out, they may give you five to 10 days to respond with all the material, and they may be 70 questions long. They're robust."

DeLucia said she recommends that, as part of their standard marketing review process, firms retain the material to substantiate any claims so they're not going back after the fact to respond to the SEC.

If a firm is unable to meet the SEC's "on demand" requirement, it will likely be subject to more scrutiny by the agency. 

"They're likely going to dig in further on your advertisements and continue to kind of ruin your week, month, several months, years," DeLucia said. "I mean, these exams can really drag on. If the SEC feels that they found an area where the firm has material deficiencies, they will continue to ask questions. They'll ask the same question repeatedly. They'll change the question a little bit. They'll ask for more documentation. It's definitely best to put in the work up front."

For advisors, the implication is clear: Marketing compliance isn't a one-time project. It's an ongoing process that requires coordination between marketing, compliance and leadership teams.

The SEC's latest warning suggests the firms that treat it otherwise may find themselves on the receiving end of a deficiency letter, or worse.