The SEC Marketing Rule: A Practitioner's Guide
How to leverage testimonials and endorsements without triggering an exam deficiency. Plain English breakdown of Rule 206(4)-1.
The amended SEC Marketing Rule represents the most significant change to RIA advertising in over forty years. It replaced a blanket prohibition on testimonials with a principles-based framework that allows them—provided strict disclosure and operational requirements are met.
Testimonials vs Endorsements
| Type | Definition | Example |
|---|---|---|
| Testimonial | A statement by a current client about their experience with the RIA. | "My advisor saved me 20% on taxes." |
| Endorsement | A statement by a non-client (e.g., CPA, attorney) recommending the RIA. | A local CPA referring you on their website. |
The "Clear and Prominent" Disclosures
If you use a testimonial, you must disclose three things clearly and prominently (i.e., at the same time and in the same place as the testimonial, not buried in a footer):
- Whether the person is a current client or non-client.
- Whether cash or non-cash compensation was provided.
- A brief statement of any material conflicts of interest.
Example Compliant Disclosure:
"John Doe is a current client of the Firm. No compensation was provided for this testimonial. This statement may not be representative of the experience of other clients."
Common Deficiencies to Avoid
- Cherry-Picking: You cannot only show 5-star Google reviews. If you syndicate reviews, you must show a fair representation.
- Hypothetical Performance: Presenting hypothetical performance to retail investors without strict controls and understanding of their financial situation.
- Missing Form ADV Updates: Failing to update Item 5 of Form ADV Part 1A to reflect that you now use testimonials. See our Form ADV Best Practices.
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