On December 16, 2025, the SEC’s Division of Examinations issued a Risk Alert shedding light on recurring deficiencies in investment advisers’ adherence to the Marketing Rule under the Investment Advisers Act of 1940. The alert focuses on observations made by exam staff regarding testimonials, endorsements, and third-party ratings, offering valuable insights for investment advisers and broker-dealers alike. 

Testimonials and Endorsements: Key Areas of Concern 

The Risk Alert identifies several common compliance pitfalls related to testimonials and endorsements: 

• Disclosure Deficiencies: Missing or ambiguous disclosures concerning the promoter’s status (current client/investor), compensation received (cash or non-cash), and potential material conflicts of interest. 

• Incomplete Compensation Disclosure: Failure to fully disclose material terms of compensation arrangements with promoters. 

• Conflict of Interest Oversights: Neglecting to disclose conflicts arising from promoters’ financial stakes in the adviser or affiliations with advisory firms maintaining significant relationships. 

• Weak Oversight and Compliance: Inadequate demonstration of a reasonable basis for believing testimonials/endorsements comply with the Marketing Rule and failure to maintain necessary written agreements with paid promoters. 

• Ineligible Promoter Compensation: Lack of robust processes to identify and avoid compensating individuals barred from receiving endorsement-related compensation. 

• Improper Use of Affiliated Promoters: Failure to meet disclosure and agreement requirements or applicable exemption conditions when utilizing promoters affiliated with the adviser. 

Third-Party Ratings: Compliance Gaps 

The Risk Alert also emphasizes deficiencies related to the utilization of third-party ratings: 

• Policy and Procedure Lapses: Failure to update or implement policies and procedures addressing the use of third-party ratings across various marketing channels (websites, social media, materials, press releases, newsletters). 

• Insufficient Due Diligence: Inadequate support for the adviser’s belief that the rating methodology is fair and unbiased, including the design of questionnaires or surveys used in generating ratings. 

• Missing or Inadequate Disclosures: Failure to provide clear and prominent disclosures explaining the limitations and context of third-party ratings. 

Implications and Recommendations 

Investment advisers should proactively review their marketing materials and compliance procedures to ensure alignment with the Marketing Rule’s requirements concerning testimonials, endorsements, and third-party ratings. Particular attention should be paid to ensuring clear and prominent disclosures, proper disclosure of conflicts and compensation terms, and the implementation of robust written agreements and due diligence processes. 

Broker-dealers should also take note of these standards, as advisers’ marketing practices can influence distribution and sales strategies and may involve broker-dealer communication channels. By understanding and addressing these potential shortcomings, firms can mitigate risk and enhance compliance with the Marketing Rule.