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SEC’s Recent Marketing Rule Risk Alert Identifies Additional Areas of Focus During Compliance Examinations

by | Jun 30, 2023 |

By Seth Gaudreau and Stephen Wilkes

On June 8, 2023, the Securities and Exchange Commission’s (“SEC”) Division of Examinations (the “Division”) published a risk alert (the “Risk Alert” – found here) focused on its examination of investment advisers (specifically including advisers to private funds) under Rule 206(4)-1 (the “Marketing Rule”) of the Investment Advisers Act of 1940.

The Risk Alert follows the SEC’s September 19, 2022, Marketing Rule risk alert (found here) which focused on policies and procedures, substantiation requirement (such as whether advisers have a reasonable basis for believing they will be able to substantiate material statements of fact in advertisements), performance advertising, and books and records requirements. The Division will be reviewing the above areas as well as continuing to focus, in its exams, on the Marketing Rule’s General .

According to the Risk Alert, the Division’s examinations will focus on compliance with the Marketing Rule’s requirements regarding: (i) the use of testimonials and endorsements in an advertisement; (ii) the use of third-party ratings in an advertisement; and (iii) the completion of Form ADV.

Testimonials and Endorsements

The Division will focus on advisers’ use of testimonials and endorsements in an advertisement, including whether: (i) the provided disclosures are clear and prominent and effectively communicate whether the person giving the testimonial or endorsement (the “Promoter”) is a client or investor;  if applicable, that the Promoter is compensated; and of material conflicts of interest; (ii) oversight conditions are met, such as whether advisers have a reasonable basis for believing that the testimonials or endorsements comply with the Marketing Rule; (iii) where required, written agreements are entered into with Promoters; and (iv) advisers have compensated ineligible persons for testimonials or endorsements, if the adviser knew or reasonably should have known the person was ineligible.


This is an area that will warrant special attention from advisers as the “promoter” concept is expansive and may encompass relationships with solicitors, finders, investor referral networks or programs, and lead-generation firms.

Third-Party Ratings

The Division is focusing its exams on advisers’ compliance with the Marketing Rule’s requirements for the use of third-party ratings in advertisements, including whether:

  • The adviser provides, or reasonably believes that the third-party rating provides, clear and prominent disclosures of: (i) the date on which the rating was given and the period of time on which the rating was based; (ii) the identity of the third party that created and tabulated the rating; and (iii) if applicable, the fact that compensation has been provided directly or indirectly by the adviser in connection with obtaining or using the third-party rating.
  • The adviser has a reasonable basis for believing that questionnaires or surveys used in preparation of third-party ratings are structured to make it equally easy for a participant to provide favorable and unfavorable responses and are not designed or prepared to produce any predetermined result.


The SEC is focusing on third-party endorsements and advisers need to follow their relevant procedures and flag for review any disclosures relating to rating, rankings, or awards used in any “advertisement.”

Form ADV

The Division will review whether an investment adviser has accurately responded to the new Marketing Rule-related questions on their Form ADV annual amendments.


Risk alerts are not specific observations from examinations or as interpretive guidance. However, they do provide advisers with an opportunity to reflect on their practices, policies and procedures, and to implement appropriate modifications to their compliance programs.