Page 50 - Investment Advisor December 2022/January 2023

COMPLIANCE COACH

By Thomas D. Giachetti

New SEC Marketing Rule: How to Use Testimonials

The rule unlocks advertising options but comes with compliance-related minefields.

s of Nov. 4, advisors are required have Google Business pages where the
to comply with the Securities public can leave a public review of the
A and Exchange Commission’s business. While Google reviews are not
new marketing rule. The marketing rule specifically advisor-created advertise-
tightens oversight of marketing prac- ments, they are subject to compliance
tices and policies, but also expands advi- oversight. For this reason, we strongly
sors’ ability to use client testimonials in recommend that Google review pages
marketing materials. include general testimonial disclosure.
With these new marketing powers If an advisor requests that clients
come certain responsibilities pertain- furnish a Google review, the advisor
ing to obtaining testimonials and dis- must follow the guidelines on obtaining
closures that must be made alongside less of whether the client has had a posi- testimonials. The advisor is not permit-
the testimonials. tive or negative experience (as indicated ted to cherry-pick client reviews and
The marketing rule defines testimoni- in its written response) with the firm. is required to ask all clients to leave
als as “Any statement by a current client When including testimonials in mar- a review. If the advisor shares such
or investor in a private fund advised by keting materials (e.g., on the firm’s web- a review on its website, he or she is
the investment advisor: (i) about the site), disclosures must be made on the required to make the same disclosures,
client or investor’s experience with the same page and be as prominent as the and should also ask the reviewer for
investment advisor or its supervised per- testimonial itself. permission to share the review.
sons (ii) that directly or indirectly solic- There are three disclosures: Advisors are not permitted to skew
its any current or prospective client or 1. Whether the testimonial was given the results or hide negative reviews
investor to be a client of, or an investor by a current client, left on Google. Specifically, the advisor
in a private fund advised by, the invest- 2. Whether cash or non-cash (e.g., a should not access third-party site tools
ment advisor; or (iii) that refers any cur- fee reduction, extravagant or frequent to review and hide certain testimonials.
rent or prospective client or investor to firm-paid entertainment, etc.) compen- The firm may use third-party website
be a client of, or an investor in a private sation was provided for the testimo- tools for analytics or internal review
fund advised by, the investment advisor.” nial and the terms of the compensation purposes. However, no public-facing
When the time comes to request tes- agreement; and, changes can be made to client reviews.
timonials from clients, there are certain 3. A statement of any material conflict An exception to this rule exists when
steps that advisors must take to ensure of interest (e.g., is the person or entity a review is edited for pre-established,
compliance with the marketing rule. providing the testimonial a compensat- objective criteria such as profanity, or
To start, the rule prohibits “cherry pick- ed promoter; if yes, the promoter has defamatory or threatening language.
ing.” If an advisor decides to ask clients an incentive to recommend the advisor,
for testimonials, the advisor is required resulting in a material conflict of interest). GOOD LUCK!
to ask all clients (or, with limitations, a The clear and prominent disclosures The marketing rule unlocks a broad
specific subset of similar clients, such as may be part of a “layered disclosure” range of new advertising avenues for
all ERISA plan clients), not just those who approach, where a succinct, tailored dis- advisors. However, there are potential
might provide a positive review. closure is included with the advertise- compliance-related minefields.
Similarly, advisors must be fair and ment, and a more detailed disclosure on
balanced when including testimonials in content such as compensation arrange- Thomas D. Giachetti is chairman of the
advertising material and must include ments and material conflicts of interest Investment Management and Securities Practice
any positive and negative testimonials. could then be provided through hyper- of Stark & Stark. A former investment banker
The advisor must document and maintain links, supplementary document or the and NASD registered representative. Joseph C.
records indicating that all clients have end of a slide deck. Antonakakis is an Associate and member of the Adobe Stock
been invited to provide a review, regard- Many businesses, including RIAs, Investment Management & Securities Practice.

48 INVESTMENT ADVISOR DECEMBER 2022/JANUARY 2023 | ThinkAdvisor.com