Thumbs-Up: Testimonials, Endorsements, and the New SEC Marketing Rule

Our blog post series on the new SEC marketing rule covers a range of relevant topics, including the expanded definition of advertising, leveraging technology, performance advertising, hypothetical performance, third-party ratings, record-keeping and Form ADV requirements, review and approval of ads, and overall best practices. In this post, we consider how testimonials and endorsements impact investment advisers’ marketing and advertising strategy as they implement the new rule.

What Are Testimonials and Endorsements?

So what are testimonials and endorsements, and how do they affect your business now that the SEC allows them—with restrictions? Let's start with a simple breakdown.

The new marketing rule classifies testimonials and endorsements as paid solicitations, previously regulated by the cash solicitation rule. Additionally, the new rule requires advisers to disclose any cash or non-cash compensation associated with testimonials and endorsements that are included in ads.

Speaking of disclosures, what does the new rule require? Read on.

Disclosure Requirements for Testimonials and Endorsements

The use of testimonials and endorsements is now permitted under the new marketing rule, subject to certain disclosures. Two major disclosure categories are important to keep in mind.

Adviser Oversight and Compliance Provision for Testimonials and Endorsements

The new marketing rule also requires advisers who directly distribute testimonials and endorsements to comply with the oversight and compliance provision. The oversight requirement has two key components.

Disqualification Provisions for Testimonials and Endorsements

Advisers who have engaged in misconduct are prohibited from using testimonials and endorsements under the new marketing rule. The disqualification provisions apply only to compensated (not uncompensated) testimonials and endorsements. Here are three takeaways from the disqualification provisions.

Exemptions for Testimonials and Endorsements

Finally, the new marketing rule exempts testimonials and endorsements from certain requirements. Keep these four exemption categories in mind as you interpret and implement the new rule.

So how do you plan to incorporate testimonials and endorsements into your marketing and advertising strategy? Let us know in this quick survey.

In our next post, we’ll explore the ins and outs of performance advertising.