SEC Marketing Rule Checklist for RIAs in 2024
This SEC marketing rule checklist helps RIAs manage testimonials, endorsements, and performance data while staying compliant with current advertising regulations.
What is the SEC marketing rule checklist for RIAs?
The SEC marketing rule checklist is a set of verification steps RIAs use to ensure all advertisements comply with Investment Advisers Act Rule 206(4)-1. This rule governs how you use testimonials, endorsements, third-party ratings, and performance data. Every piece of content your firm produces, from LinkedIn posts to monthly newsletters, must pass these specific compliance hurdles to avoid deficiency letters during SEC exams.
According to the SEC Risk Alert, the staff is prioritizing the review of whether advisers have adopted and implemented written policies and procedures reasonably designed to prevent violations. This means your checklist is not just a guide. It is a necessary component of your firm's compliance infrastructure.
How do advisors handle testimonials and endorsements?
You must provide clear and prominent disclosures whenever you use a testimonial or endorsement. A testimonial is a statement by a current client about their experience. An endorsement is a statement by a non-client. Both require you to disclose whether the person was compensated and if any material conflicts of interest exist.
Advisors often struggle with the definition of compensation. The SEC considers any economic benefit, including fee waivers or directed brokerage, as compensation. You must have a written agreement with any promoter who receives more than $1,000 in value over a 12-month period. This agreement must outline the activities of the promoter and their compensation structure.
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What are the performance advertising requirements?
Performance advertising must always include net-of-fees results alongside gross-of-fees figures. The SEC requires these to be presented with equal prominence and over identical time periods. You cannot show 1-year, 5-year, and 10-year gross returns without also showing the corresponding net returns that account for your management fees and any platform charges.
According to Kitces.com research, the rule also prohibits the use of hypothetical performance unless you have implemented policies to ensure the performance is relevant to the financial situation and investment objectives of the intended audience. Most RIAs should avoid using hypothetical performance in general retail advertising to minimize regulatory risk.
| Compliance Element | Requirement for RIAs |
|---|---|
| Testimonials | Must include disclosure of client status and compensation. |
| Performance Data | Must show Net-of-Fees performance with equal prominence to Gross. |
| Third-Party Ratings | Must disclose the date of the rating and who provided it. |
| Substantiation | Firms must be able to prove any material claim of fact upon demand. |
| Social Media | Interactive communications may be excluded if not 'offered' by the firm. |
How does the SEC define an advertisement?
The SEC defines an advertisement as any direct or indirect communication an investment adviser makes to more than one person that offers the investment advisory services with regard to securities. This includes your website, podcasts, and even one-on-one presentations if they contain hypothetical performance data. Private fund communications also fall under this scope.
Exclusions do exist. Extemporaneous, live, oral communications are generally excluded. However, if you use a prepared script or a slide deck during a live webinar, those materials are considered advertisements. You must archive these materials as part of your books and records under Rule 204-2.
How should RIAs update Form ADV for marketing?
You must update Form ADV Part 1A, specifically Item 5.L, to disclose your marketing practices. This section asks whether your firm uses testimonials, endorsements, or third-party ratings. It also asks if you pay cash or non-cash compensation for these promotions. This data allows the SEC to risk-score your firm before they ever step foot in your office.
According to Schwab RIA Benchmarking studies, high-growth firms are increasingly using digital channels, which makes accurate ADV reporting even more critical. If your ADV says you do not use testimonials, but your website features client quotes, you are inviting a regulatory inquiry.
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What are the prohibited marketing practices?
The rule includes seven general prohibitions that apply to all advertisements. You cannot include an untrue statement of a material fact or omit a material fact necessary to make the statement not misleading. You cannot include a statement that is likely to cause an untrue or misleading implication. You cannot discuss potential benefits without providing fair and balanced treatment of material risks.
Substantiation is the most common pitfall for advisors. If you claim to be the 'best RIA in the city' or 'top-rated advisor,' you must have a contemporaneous record that proves that claim. If you cannot prove it with data or a third-party award, you cannot say it. Avoid superlative language that you cannot objectively verify through a third-party source.
How do you manage social media under the rule?
Social media is a gray area that requires careful monitoring. If you 'like' or 'share' a client's positive comment about your firm, you may be 'adopting' that content, which turns it into an advertisement. This is known as the entanglement or adoption theory. To stay safe, firms should have clear social media policies that forbid advisors from interacting with client testimonials on platforms like LinkedIn or X.
Your CCO should review any social media profiles where an advisor identifies as a representative of the RIA. Even if the advisor uses a personal account, if they are discussing investment strategies or firm performance, that content is subject to the marketing rule. You must use an archiving tool like Smarsh or Hearsay Systems to capture these communications.
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Frequently Asked Questions
Can I use Google Reviews on my financial advisor website?
Yes, but you must comply with the SEC marketing rule requirements. This involves providing disclosures that indicate whether the reviewer is a client and if they were compensated. You cannot selectively choose which reviews to display. Displaying only five-star reviews while hiding negative ones is considered a violation of the general prohibitions against misleading advertisements.
Does the SEC marketing rule apply to LinkedIn posts?
The rule applies to LinkedIn posts if they offer investment advisory services to more than one person. While personal updates might be exempt, any content discussing your firm's expertise, performance, or client success stories is an advertisement. You must ensure these posts meet all disclosure requirements and are archived according to books and records regulations.
What is the 1000 dollar threshold for promoters?
If an RIA pays a promoter more than $1,000 in cash or non-cash compensation during the preceding 12 months, a written agreement is required. The promoter must also provide a specific disclosure to the potential client at the time of the solicitation. This applies to both client and non-client promoters who refer business to your firm.
Sources
"Most RIAs are one SEC exam away from a major marketing deficiency. If you are still using client quotes without specific disclosures or showing gross performance only, you are at risk. Use this checklist to fix your gaps. Link in comments."
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