SEC Marketing Rule for RIAs: 2024 Testimonial Guide
The SEC marketing rule allows RIAs to use testimonials if they include specific disclosures, verify solicitor status, and maintain written oversight agreements.
How does the SEC marketing rule impact RIA growth?
The SEC marketing rule updated the regulatory framework for investment adviser advertisements for the first time in decades. This shift moved the industry away from a flat ban on testimonials toward a principles based approach. According to Kitces.com, the rule replaced the former Advertising Rule and Cash Solicitation Rule with a single modernized regulation. This allows firms to use social proof to build trust with prospects while maintaining strict investor protections.
For RIAs managing $50M to $500M in AUM, this means you can finally showcase the success of your retirement planning services through client stories. However, the burden of proof lies with the firm. You must ensure that every piece of content meets the fair and balanced standard. This includes avoiding cherry picked results or misleading statements about your investment performance.
What qualifies as an advertisement under the new rule?
An advertisement includes any direct or indirect communication an investment adviser offers to more than one person. This covers social media posts, website copy, and even recorded webinars. The SEC defines two specific prongs for advertisements. The first involves communications offering advisory services to prospects or offering new services to existing clients. The second involves any testimonial or endorsement for which an adviser provides compensation.
Key requirements for using testimonials and endorsements
To remain compliant, your firm must implement three specific layers of protection when using testimonials. First, you must provide clear and prominent disclosures at the time the testimonial is disseminated. These disclosures must inform the reader whether the person providing the testimonial is a current client. Second, you must disclose if any cash or non cash compensation was provided for the statement. Third, you must list any material conflicts of interest resulting from the relationship between the firm and the promoter.
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Managing compensated vs. uncompensated promoters
The rule distinguishes between testimonials from clients and endorsements from non-clients like COIs or influencers. If you pay a third party more than $1,000 over a 12 month period, you must have a written agreement in place. According to the SEC Rule 206(4)-1, the adviser remains responsible for the oversight of these promoters. You cannot simply pay for a lead and ignore how that lead was generated. You must have a reasonable basis for believing that the promoter complies with the rule requirements.
| Feature | Testimonial (Client) | Endorsement (Non-Client) |
|---|---|---|
| Source | Current Client | COI, Solicitor, or Third Party |
| Disclosure | Must state client status | Must state non-client status |
| Compensation | Must disclose any payment | Must disclose any payment |
| Written Agreement | Required if >$1,000 | Required if >$1,000 |
Documentation and Form ADV updates
Compliance does not end with the advertisement itself. You must update your Form ADV Part 1A to reflect your use of testimonials, endorsements, and performance advertising. The SEC uses these disclosures to risk rate firms for examinations. According to a 2023 SEC Risk Alert, examiners are focusing heavily on whether firms have adopted and implemented written policies and procedures reasonably designed to prevent violations of the marketing rule.
Keep a central repository of all marketing materials and the associated disclosures. If you use automated tools for advisor email marketing, ensure your archive captures the exact version of the email sent to prospects. This audit trail is your primary defense during a routine SEC examination. You should also verify that your TAMP or external marketing agency understands these nuances if they produce content on your behalf.
How to handle performance advertising
If your retirement planning marketing includes performance data, the requirements are even stricter. You must present net of fees performance alongside any gross performance. The rule prohibits including performance results in an advertisement unless the results are presented for specific time periods. Specifically, you must show 1, 5, and 10 year performance figures. If the portfolio has not existed that long, you must show the life of the investment.
Avoid using hypothetical performance unless it is relevant to the likely financial situation and investment objectives of the intended audience. For most RIAs targeting mass affluent retirees, showing hypothetical backtested data is a high risk move that requires extensive documentation. Focus instead on the planning process and the qualitative value you provide.
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Compliance checklists for RIA marketing teams
- Review all social media profiles for legacy testimonials that may not have proper disclosures.
- Draft a standard disclosure block for all client success stories.
- Audit your solicitor and COI referral arrangements for written agreement compliance.
- Train all staff on the definition of an advertisement to prevent accidental non compliance on personal LinkedIn profiles.
- Establish a review process for any third party ratings or awards you display on your website.
Social proof is the most effective way to lower the barrier to entry for new clients. By following the SEC marketing rule, you can use these tools to show prospects that you are a trusted steward of their retirement assets. Ensure your internal compliance officer or external consultant reviews all new templates before they go live.
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Frequently Asked Questions
Can RIAs use Google Reviews under the new marketing rule?
Yes, RIAs can use Google Reviews if they meet specific criteria. While you cannot control what clients post on third party sites, if you republish those reviews on your own website or social media, they become advertisements. You must then include the required disclosures regarding client status and compensation. You also cannot selectively hide negative reviews while highlighting positive ones.
Does the SEC marketing rule apply to one-on-one emails?
Generally, the SEC marketing rule does not apply to one-on-one communications unless they include performance data or testimonials for which you paid a promoter. However, if the email contains a standardized pitch deck or is sent to multiple prospects, it likely qualifies as an advertisement. Routine client communications and responses to specific requests for information are usually exempt.
What are the disclosure requirements for non-cash compensation?
Non-cash compensation, such as waived fees, gift cards, or reciprocal referrals, must be disclosed just like cash payments. The disclosure must clearly state that the promoter received an incentive for their endorsement. This transparency ensures that prospects understand the potential bias behind the recommendation. Firms should track all forms of compensation in their compliance logs.
Sources
"The SEC finally opened the door for RIAs to use testimonials, but most firms are still playing it too safe or ignoring the risks. Social proof is the fastest way to build trust with retirees. Are you following the disclosure rules correctly? Link in comments."
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