SEC Division of Examinations Issues Risk Alert on Marketing Rule Compliance:

Author:

Victoria Olson DeLucia, CRCP®
Director of Institutional Engagement at Confluence

The SEC’s Division of Examinations (the “Division”) recently issued a Risk Alert to provide investment advisers, investors, and market participants with practical guidance regarding compliance with the amended Rule 206(4)-1 under the Investment Advisers Act of 1940 (the “Marketing Rule”). The December 16, 2025 Risk Alert follows prior alerts addressing general prohibitions, compliance programs, books and records requirements, and Form ADV reporting obligations.

This latest Risk Alert focuses on two specific areas of the Marketing Rule: Testimonials and Endorsements and Third-Party Ratings. The staff highlights key observations regarding advisers’ disclosure practices, oversight responsibilities, and due diligence processes under these provisions. While not exhaustive, the findings underscore recurring gaps in compliance and serve as a reminder for advisers to align their marketing practices with regulatory expectations.

Testimonials and Endorsements: Compliance Gaps and Oversight

The Marketing Rule establishes clear conditions for using testimonials and endorsements in adviser advertisements, including disclosure requirements, oversight obligations, and prohibitions on compensating certain ineligible persons.

The staff observed several common deficiencies:

• Incomplete or unclear disclosures: Testimonials and endorsements often lacked required disclosures about whether the promoter was a current client or received compensation, or the disclosures were not “clear and prominent” as required. Hyperlinks, small fonts, or placement at the bottom of pages were frequently insufficient.
• Peer groups that do not accurately reflect a fund’s true investment universe can skew relative performance assessments. A strong fund may appear weak or vice versa, depending on the chosen comparison set.
• Inadequate documentation of compensation and conflicts: Some advisers disclosed compensation or conflicts in a generic manner, omitting material details about cash or non-cash payments, referral arrangements, or promoters’ financial interests in the adviser.
• Weak oversight and compliance practices: Certain advisers lacked a reasonable basis to believe that testimonials and endorsements complied with the Marketing Rule. Others failed to maintain written agreements with compensated promoters, or agreements did not clearly define the scope of promotion activities and compensation terms.
• Engagement of ineligible persons: Some advisers compensated promoters with disqualifying regulatory histories, contrary to the Marketing Rule’s prohibitions.
• Affiliated promoters: In instances where promoters were affiliated with the adviser, the relationship was sometimes not disclosed clearly or timely to clients or investors.

These observations highlight the importance of not only updating compliance policies and procedures but ensuring their consistent implementation across all marketing channels, including websites, social media, and referral networks.

Third-Party Ratings: Due Diligence and Disclosure

The Risk Alert also examined advisers’ use of third-party ratings in advertisements. Compliance with these provisions requires advisers to have a reasonable basis for believing the methodology behind the ratings is fair and unbiased, and to provide clear and prominent disclosures about the ratings and any related compensation.

Key staff observations include:

• Insufficient due diligence: Some advisers did not review the questionnaires or surveys underlying third-party ratings, nor did they obtain representations from rating providers to satisfy the due diligence requirement.
• Inadequate disclosures: Ratings were sometimes presented without clear identification of the rating date, methodology, rating period, or the third-party source. Compensation paid to obtain or promote ratings—such as for logo use or priority placement—was often omitted from disclosures or not presented prominently.
• Failure to implement policies: Even advisers who updated policies to address third-party ratings sometimes failed to implement them consistently across all marketing platforms.

Practical Takeaways

The Division’s observations underscore that compliance with the Marketing Rule requires more than written policies—it requires thoughtful implementation, robust oversight, and regular monitoring of all marketing practices. Advisers are encouraged to:

• Review and update policies and procedures to reflect the requirements of the Testimonials and Endorsements and Third-Party Ratings Provisions.
• Ensure all disclosures are clear, prominent, and specific to the context of the testimonial, endorsement, or rating.
• Maintain written agreements with compensated promoters, clearly documenting the scope of promotional activities and terms of compensation.
• Conduct due diligence on third-party ratings, including reviewing methodologies and obtaining assurances from rating providers.
• Train personnel and monitor marketing activities regularly to ensure adherence to policies and procedures.

By proactively assessing these areas, advisers can strengthen compliance programs, reduce risk, and demonstrate a commitment to transparency and investor protection.

How Confluence Can Help

At Confluence, we understand that compliance isn’t just about checking boxes—it’s about building resilient, scalable programs that adapt to regulatory uncertainty. To learn more about Confluence Compliance Services – and to “make our experts your experts” – contact us or learn more.

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