Despite the Trump administration’s generally lighter approach to regulation, a recently issued “risk alert” shows the SEC remains intent on keeping financial planners forthright in their marketing and advertising.
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The Securities and Exchange Commission’s latest risk alert revisits the agency’s marketing rule, in effect since 2022. In general, it calls attention to how advisors use testimonials, endorsements and ratings from clients and others to talk up their services. Many firms, according to the SEC, are not properly disclosing required information on who exactly they’ve enlisted to sing their praises and whether those third parties are being compensated.
Issa Hanna, a partner at the law firm Eversheds Sutherland, said it’s somewhat unusual for the SEC to direct so much attention to one particular type of deficiency.
“They do list a lot of commonly observed problems from a compliance perspective,” said Hanna, who works with advisors and brokers on regulatory compliance, about the risk alert. “But the one thing that they called out immediately was the instances where advisors were not providing the mandatory disclosures at the time that a testimonial or endorsement was disseminated.”
Avoid hyperlinks and make sure footnotes are legible
For decades the SEC barred advisors from using testimonials from current or former clients or endorsements from third parties like celebrities or social media influencers. The new marketing rule gave them the right to use those sorts of promotions, but only as long as they’re accompanied by “prominent and clear” disclosures about anyone brought in to provide an advertising boost.
Matthew Shepherd, a director at the compliance consultant ACA Group, said the SEC’s risk alert shows that two typical ways advisors now make disclosures — hyperlinks and tiny footnotes — do not meet agency guidelines. Shepherd said footnotes are perhaps the most common way firms display required disclosures, both online and in printed documents.
The SEC’s risk alert doesn’t explicitly ban footnotes for disclosure purposes, but it does say they have to be formatted in a similar font and boldness as their preceding testimonial or endorsement. The risk alert also calls out firms for using hyperlinks to direct clients to disclosures on separate web pages.
“The thinking is, if the reader has to click a hyperlink, they probably won’t get around to doing it, and they’ll never see the disclosure that the SEC wants them to see,” Shepherd said.
Advisors must disclose paid ratings, industry awards
The SEC’s risk alert includes many similar strictures for ratings and awards provided by third parties like industry publications or by websites like Google and Yelp. Again, the SEC wants advisors to make clear and prominent disclosures showing whether outside firms were compensated in any way. The regulator also called for firms to take reasonable steps to ensure that any surveys or questionnaires used to confer an honor were written to make it “equally easy for a participant to provide favorable and unfavorable responses and were not designed to produce any predetermined results.”
“There are real awards that you can win legitimately because they have credibility,” Shepherd said. “And there are awards you can win because you just write somebody a check and they say, ‘Yep, thanks for the check. You’re manager of the year.'”
The SEC also wants advisors to be specific about the periods for which honors and awards were bestowed, Shepherd said.
“If you won the award 10 years ago, they want you to know it was 10 years ago,” he said. “Because if I was manager of the year 10 years ago, as opposed to I was the manager of the year this year, it matters.”
The marketing rule’s $1,000 exception
The risk alert notes that the marketing rule can be tripped when advisors pay lead-generating firms and similar “refer-a-friend” services to say nice things about them to potential clients in the hopes of winning new business. A “de minimis” exception in the marketing rule prevents advisors from having to disclose those payments if they are for $1,000 or less in a given year.
Some firms seem to think, according to the risk alert, that the exemption applies if each individual payment to a third party did not exceed the $1,000 threshold. In reality, though, if “the total compensation exceeded $1,000 during the preceding 12 months, then the payments do not “meet the definition of de minimis compensation set forth in the Marketing Rule,” according to the alert.
Shepherd said third-party ratings — unlike client testimonials or third-party endorsements — were allowed before the adoption of the SEC’s marketing rule and continue to be commonly used. Few of the firms he works with, though, have taken advantage of the ability to pepper their marketing and advertising with promotional statements from current or former clients or celebrity endorsers.
Whenever advisors broach that possibility, Shepherd said, they often end up backing away after he explains all the hoops they’ll have to jump through to remain compliant.
“There are so many pitfalls, because you are also 100% responsible for what that third-party says,” according to Shepherd. “And if they don’t do it by the book, they don’t get in trouble. You get in trouble.”
At the same time, the SEC’s risk alert suggests enough firms are using testimonials and endorsements — and using them improperly — to catch regulators’ notice.
Fewer enforcement actions, but the marketing rule remains an SEC priority
The SEC has been quick not only to warn the industry of detected violations of the marketing rule, but also to bring down its enforcement hammer. Hanna said he’s tracked 35 enforcement cases the SEC has initiated since the marketing rule took effect in 2022.
Of those, the vast majority were started before President Donald Trump took office. Twenty-three of the cases, for instance, originated in 2024 — the last full year former SEC Chair Gary Gensler was in office. Under the new chair, Paul Atkins, only one marketing rule case has been initiated, Hanna said.
Like others who’ve noted a decline in enforcement actions in the current administration, Hanna said it’s hard to say what exactly is behind the trend. It could simply be related to the leadership transition at the top of the federal government; enforcement actions generally tend to fall off in years when power is being handed from one presidential administration to the next.
The SEC’s latest risk alert suggests regulators aren’t reducing their scrutiny of statements broadcast to the general public. Hanna said advisor advertising, which the marketing rule defines as a communication sent to two or more current or potential clients, in many ways fits in squarely with the regulatory priorities set by the current administration.
Chair Atkins has called for the SEC to back away from practices he and others deride as “regulation by enforcement” while putting its energy and resources into protecting investors from harm.
“At its core, the marketing rule is an anti-fraud rule designed to prevent fraudulent marketing,” Hanna said. “So if you’re inflating your performance results or exaggerating a client’s experience, or not being transparent with people about what you may or may not have paid somebody to say something nice about you, that’s fraud. So I think this is squarely within the four corners of what the Division of Enforcement has said they’re going to be concerned about over the next four years.”
