Page 39 - Investment Advisor July/August 2021
P. 39
THE PLAYING FIELD
By Melanie Waddell
Using Testimonials and Endorsements Under
SEC’s Marketing Rule? Tread Carefully
Advisory firms are itching to use these marketing methods before their
compliance departments are ready.
W hile the Securities and cast that while he doesn’t “see a black
and white yes or no answer” on whether
Commission’s
Exchange
advertising and marketing
rule has been in effect since early May, advisory firms should start using testi-
monials and endorsements now, firms
compliance experts are cautioning advi- “do so at your own risk.”
sors to tread carefully when using tes- That risk, Lundy continued, “is going
timonials and endorsements before the to be heightened” under SEC Chairman
rule’s Nov. 4, 2022, compliance date. Gary Gensler. “We’ve seen some very
The use of testimonials and endorse- hawkish statements by the new chair …
ments “before the firm is fully compliant and we’ve seen hawkish statements by
and updating its compliance [policies the new leadership in the [SEC] divi-
and procedures] … that is a huge risk to sions. That’s who we’re going to be
the firm,” Amy Lynch, founder and prin- confronted with when examiners come
cipal of FrontLine Compliance, said on out in the field to examine compliance
a recent webcast held by ThinkAdvisor. with this rule.”
That’s the message that the SEC was
The SEC, Lundy continued, “has been
Firms “shouldn’t trying to send in its FAQ on the rule touting for years now that they have a risk-
be out there using issued April 14, Lynch said, in which the based” approach to exams. “It seems to me
testimonials and agency noted that “they don’t want firms that firms that are putting out endorse-
ments and testimonials early … closer to
to partially comply with this rule” before
endorsements now. next November.Firms “shouldn’t be out the effective date versus the compliance
And by that, I mean there using testimonials and endorse- date, may be viewed as higher risk, may be
higher up on a priority list to be examined
ments now,” Lynch warned. “And by that,
not using them before I mean not using them before their com- for compliance with the new rule.”
pliance program is actually ready for it.”
The bottom line, said Lundy: Don’t put
their compliance Former SEC Chairman Jay Clayton the cart before the horse when consider-
program is actually said when the rule passed that the new ing the use of testimonials and endorse-
ments. It “gets back to the importance
“comprehensive framework for regulat-
ready for it.” ing advisors’ marketing communications of having that infrastructure, of compli-
recognizes the increasing use of electron- ance and supervisory policies, proce-
—Amy Lynch, FrontLine ic media and mobile communications dures and processes in place to support
Compliance and will serve to improve the quality of what you’re trying to accomplish.”
information available to investors.”
The firm’s compliance department,
The new rule, Clayton said, provides Lynch added, “is going to have to be
for “an extended compliance peri- reviewing any testimonial or endorse-
od intended to provide advisors with ment that a financial advisor is pro-
a sufficient transition period, includ- posing. It should go through your
ing to enable consultation with the compliance department or hopefully
Commission’s expert staff.” firms may come up with certain tem-
Jim Lundy, a partner at Faegre plared language and disclosure for these
Drinker in Chicago, agreed on the web- testimonials and endorsements.”
JULY/AUGUST 2021 INVESTMENT ADVISOR 37
