The SEC Marketing Rule, which took full effect in 2022, replaced decades-old advertising and cash-solicitation rules for investment advisers with a single modern framework. Its headline change, allowing testimonials and endorsements, came bundled with exacting conditions that make it easy to get wrong.
The old rules effectively banned client testimonials. The Marketing Rule permits them, along with endorsements and third-party ratings, but only with required disclosures, oversight, and, in many cases, written agreements and disclosure of compensation. It also sets general prohibitions against untrue or misleading statements, unsubstantiated claims, and cherry-picked or misleading performance.
The rule is particularly detailed on performance. Presenting gross performance generally requires showing net performance with equal prominence, and various results must be shown over prescribed time periods and with specific disclosures. Hypothetical and extracted performance carry their own conditions. Getting performance presentation wrong is one of the most common and serious exposures under the rule.
Because the rule applies broadly to advertisements and hinges on disclosures and substantiation, advisers need a real review process: someone who checks every marketing piece against the rule before it goes out. A great-looking ad that omits a required disclosure is still a violation.
Testimonials are allowed. Carelessness is not.
Greenridge L&C Advisors is a compliance consultancy, not a law firm. This is general information, not legal advice.