Continued Marketing Rule Violations by Investment Advisers

I. Overview 

On December 16, 2025, the SEC’s Division of Examinations (the “Division”) published a Risk Alert entitled Additional Observations Regarding Advisers’ Compliance with the Marketing Rule (the “Risk Alert”).Compliance with Advisers Act Rule 206(4)-1 (the “Marketing Rule”) has been a high priority for the SEC. The Risk Alert focusses on Marketing Rule provisions Rule 206(4)-1(b) (“Testimonials and Endorsements Provision”) and Rule 206(4)-1(c) (“Third-Party Ratings Provision”).Previous communications from the Division detail other aspects of Marketing Rule compliance including related Form ADV disclosures. We anticipate continued enforcement actions for advisers that do not carefully comply with the Marketing Rule.

II. Observations Regarding Compliance with the Marketing Rule’s Testimonials and Endorsements and Third-Party Ratings Provisions

The staff reviewed advisers’ advertisements that included testimonials (statements from current clients or investors in private funds), endorsements (made by other persons), or third-party ratings. Below is an edited summary of the staff’s observations regarding compliance with the Testimonials and Endorsements and the Third-Party Ratings Provisions.

A. Observations Related to the Testimonials and Endorsements Provisions

The Testimonials and Endorsements Provisions prohibit testimonials and endorsements in advertisements unless certain disclosure and oversight conditions are met. These Provisions also prohibit advisers from compensating certain ineligible persons for providing testimonials or endorsements. Ineligible persons include those subject to a disqualifying Commission action or any disqualifying event.

The staff observed testimonials and endorsements that did not comply with all or some of the requirements for both compensated and uncompensated testimonials and endorsements. The most common reason an endorsement or testimonial was non-compliant was that it did not provide the disclosures at the time the testimonial or endorsement was disseminated. Such testimonials or endorsements were often presented on advisers’ websites, including websites using alternative business names of their supervised persons (“d/b/a” websites). Advisers used lead-generation firms, social media influencers, and adviser referral networks, and offering “refer-a-friend” programs to current clients for de minimis compensation (without even recognizing they were using endorsements or testimonials). Additionally, advisers used testimonials or endorsements in advertisements without updated or implemented compliance policies and procedures under the Compliance Rule. Below are additional staff observations:

Clear and prominent disclosures. Certain advertisements contained testimonials or endorsements but did not provide the required clear and prominent disclosures, such as whether the promoter (i.e., the person providing a testimonial or endorsement) was a current client or investor in a private fund, and, if applicable, whether the promoter was paid cash or non-cash or had a material conflict of interest. In some cases, required disclosures were provided, but not in a clear and prominent manner. For example, advisers used hyperlinks rather than including the required clear and prominent disclosures in the testimonial or endorsement, or the disclosure was in a smaller or lighter font than the testimonial or endorsement. Additionally, advisers incorporated into advertisements current client testimonials or former client endorsements from third-party websites onto the advisers’ websites without clearly and prominently disclosing that those testimonials and endorsements were provided by current or former clients. Finally, advisers provided gift cards as compensation to clients to write reviews on third-party websites, but did not have a basis to reasonably believe that the person giving the testimonial complied with the disclosure requirements for paid testimonials.

Disclosure of material terms of compensation arrangements. Advisers did not disclose material terms of compensation arrangements, including a description of the specific compensation provided directly or indirectly to promoters for the testimonials or endorsements included in their advertisements. Also advisers provided generic disclosures (a “range” of compensation or “up to” a certain percentage) about compensation arrangements that omitted certain specific material information. For example, the staff observed advisers that disclosed that promoters, including social media influencers, received compensation from advisers for client referrals but omitted material information about the specific compensation terms of the referral payments. According to the Marketing Rule Release (p. 96), “If a specific amount of cash compensation is paid, the advertisement should disclose that amount. If the compensation takes the form of a percentage of the total advisory fee over a period of time, then the advertisement should disclose such percentage and time period. With respect to non-cash compensation, if the value of the non-cash compensation is readily ascertainable, the disclosures should include that amount.”

Disclosure of material conflicts. Advisers did not disclose material conflicts resulting from relationships with promoters or the compensation arrangements for the testimonials or endorsements included in advertisements. For example, advisers did not disclose material conflicts resulting from promoters having financial interests (such as a minority equity interest) in the promoted advisers, including clients of advisers who were also investors in the promoted advisers or who were principals or officers of other advisory firms that had sub-advisory or other significant arrangements with the promoted advisers.

Oversight and compliance. The oversight and compliance provisions for testimonials and endorsements require advisers to have a reasonable basis for believing that the testimonials or endorsements complied with the Testimonials and Endorsements Provisions (“reasonable basis for belief requirement”) and written agreements with paid promoters. The Marketing Rule Release (p. 103) explained: “To have a reasonable belief, an adviser may provide the required disclosures to a promoter and seek to confirm that the promoter provides those disclosures to investors. For example, if a blogger or social media influencer is endorsing and referring clients to the adviser through his website or platform, the adviser may provide such blogger or influencer with the required disclosures and confirm that they are provided appropriately on his respective pages. The adviser may choose to include provisions in its written agreement with the promoter, requiring the promoter to provide the required disclosures to investors.”

The staff observed advisers that did not appear to comply with these provisions:

• Advisers were unaware that certain arrangements involved statements that met the definition of an endorsement or were unable to demonstrate that they satisfied the reasonable basis for belief requirement. For example, the advisers’ compliance policies and procedures, written agreements with promoters, or other documentation did not enable the adviser to satisfy the reasonable basis for belief requirement.

• Advisers did not enter into or maintain written agreements with paid promoters (who received compensation above the de minimis threshold) that described the scope of the agreed-upon activities and the terms of the compensation for those promotion activities. In some cases, advisers claimed the arrangements met the requirements of the exemption for de minimis compensation because each time the adviser compensated the promoter, it was for less than $1,000; however, total compensation exceeded $1,000 during the preceding 12 months and, thus, was not de minimis compensation.

Ineligible persons. Contrary to Rule 206(4)-1(b)(3) advisers did not comply with the prohibition on compensating ineligible persons for endorsements when the advisers knew, or should have known, that the promoters were ineligible persons when the endorsements were disseminated. For example, promoters who were disqualified due to their disciplinary histories with state securities regulators received compensation.

Promoter affiliated with the adviser. The staff observed advisers using promoters affiliated with the advisers that did not meet disclosure and agreement requirements of the Testimonials and Endorsements Provisions and did not meet the conditions of the exemption from the disclosure and written agreement requirements afforded to testimonials or endorsements by certain individuals associated with the advisers. For example, the affiliation between the advisers and such promoters was not readily apparent to, or was not disclosed to, clients or investors in private funds at the time testimonials or endorsements were disseminated. Instead, the affiliations were disclosed when the prospective clients or investors were introduced to the advisers.

B. Observations Related to the Third-Party Rating Provisions

The Marketing Rule’s Third-Party Rating Provisions prohibit the use of third-party ratings in advertisements, unless an adviser has a reasonable basis for believing that any questionnaire or survey used in the preparation of the third-party ratings meet certain criteria and discloses certain information related to the ratings.

Advisers used third-party ratings without complying with all or some of the requirements for use of third-party ratings. Such third-party ratings were often included on advisers’ websites (including d/b/a websites), as well as social media profiles or accounts, marketing brochures or pitchbooks, press releases, newsletters, and blogs. While many advisers that used third-party ratings in advertisements updated their compliance policies and procedures to address this practice, others had not or had not implemented those policies.

Due diligence. Advisers used several methods to demonstrate that third-party ratings included in advertisements complied with the Third-Party Rating Provision’s “due diligence requirement” (i.e., the requirement to have a reasonable basis for believing that questionnaires or surveys used in the preparation of the third-party ratings were structured to make it equally easy for a participant to provide favorable and unfavorable responses and were not designed to produce any predetermined results).Such advisers typically: (1) reviewed publicly disclosed information about third-party questionnaire or survey methodologies; (2) obtained any questionnaires or surveys used in the preparation of the rating; and/or (3) sought representations from the third-party rating agencies regarding general aspects of how the questionnaires or surveys were designed, structured, and administered. However, some advisers did not have sufficient information to form a reasonable basis about the design or structure of questionnaires used in third-party ratings included in advertisements (e.g., websites, social media accounts, pitch books, and email communications). In these instances, advisers generally had neither developed policies and procedures for satisfying the due diligence requirement, nor had the advisers otherwise taken steps to meet this requirement, such as by obtaining or reviewing a copy of the questionnaires or surveys used in preparation of the ratings.

Clear and prominent disclosures. Advisers included third-party ratings in advertisements without providing some or all of the required clear and prominent disclosures. These advisers also did not appear to have a reasonable belief that the third-party ratings made such disclosures clearly and prominently. For example, the staff observed:

• Advisers that included links to third-party websites within their own advertisements, and these third-party websites contained the ratings of the examined advisers. Neither the advisers nor the third parties’ websites included the required disclosures. In addition, it was not clear how the advisers could have had a reasonable basis for believing that the third-party ratings included the required clear and prominent disclosures.

• Advisers that included third-party ratings in their advertisements did not clearly and prominently identify the date on which the ratings were given and the period of time upon which the ratings were based. In some cases, third-party ratings were listed with reference to a range of years in which the adviser was the recipient of the third-party rating, but the dates included by the adviser listed a year in which the adviser did not receive the award.

• Advisers placed third-party rating logos in their advertisements that did not clearly and prominently identify the third party that created and tabulated the ratings (i.e., the logo did not clearly identify the third parties, and the advisers did not otherwise clearly and prominently include such disclosures).

• Advisers that provided direct or indirect compensation in connection with obtaining or using third-party ratings without including the required disclosures. For example, when advisers paid third-party rating providers, some advisers did not disclose such payments where the advisers posted the ratings in their advertisements, including when reprinting or including a link on the advisers’ websites to the third-party rating providers’ advertisements. The advisers’ advertisements did not, among other things, disclose payments that were made for: (1) the use of the third-party rating providers’ logos or reprints of the ratings; and (2) the advisers’ priority placement in the third-party providers’ advertisements or for upgraded or enhanced exposure. The advisers also did not disclose payments that were made for referrals to the advisers, such as providing links to award recipients on the third-party rating providers’ websites that displayed the award recipients (i.e., third-party rating providers received payments for referrals through the linked webpage).

• Advisers that paid third-party rating providers fees to be considered for the ratings but did not disclose such payments where the advisers posted the ratings.

• Advisers that did not provide required disclosures in a clear and prominent manner (e.g., using hyperlinks for the disclosures that were required to be “clear and prominent,” using smaller text font for disclosures, and placing the disclosures at the bottom of the website pages away from the actual ratings).

III. Conclusion

In sharing these staff observations, the Division encouraged advisers to reflect upon their own practices, policies, and procedures and to implement any appropriate modifications to their training, supervisory, oversight, and compliance programs. This Risk Alert supplements the Division’s April 17, 2024 Risk Alert: Initial Observations Regarding Advisers Act Marketing Rule Compliance. Also noteworthy are certain SEC Marketing Rule enforcement actions: SEC Sweep Into Marketing Rule Violations; SEC Ongoing Sweep into Marketing Rule Violations; Misleading Advertisements; SEC Charges Five Investment Advisers for Marketing Rule Violations; Meridian Financial, LLC, for example.