The SEC charged nine registered investment advisers with violating the Marketing Rule by disseminating advertisements containing untrue or unsubstantiated claims or improper testimonials, endorsements, and third-party ratings without required disclosures. These firms have agreed to settle the charges and pay a combined $1.24 million in civil penalties. Key violations include:
- Untrue Statements About Third-Party Ratings: Some firms, such as Abacus and Callahan Financial, advertised untrue statements regarding third-party ratings.
- Unsubstantiated Claims of Conflict-Free Services: Firms including AZ Apice and Integrated Advisors made unsubstantiated claims of providing conflict-free advisory services.
- Improper Use of Testimonials and Endorsements: Howard Bailey advertised testimonials that were not from actual clients and did not disclose when endorsements came from paid, non-clients.
- Outdated Third-Party Ratings Without Proper Disclosures: Firms such as Abacus, Beta Wealth, and Richard Bernstein Advisors advertised third-party ratings that were over five years old without disclosing the relevant dates or periods.
Advice for RIA Firms to Avoid Marketing Deficiencies:
- Ensure Truthful and Substantiated Claims: Verify all statements made in advertisements, including claims about services, awards, and ratings. Firms should be able to substantiate any claims or representations with evidence.
- Proper Use of Testimonials and Endorsements: If testimonials or endorsements are used, ensure that they come from actual clients or disclose the true source, including if the endorser is compensated or has a material connection to the firm.
- Disclosures for Third-Party Ratings: Always provide clear disclosures regarding the date and time period of third-party ratings to avoid misleading clients, especially if the ratings are outdated.
- Regular Review of Marketing Materials: Conduct frequent compliance reviews of marketing materials to ensure adherence to the SEC’s Marketing Rule, including verifying that all required disclosures are included.
- Train Staff on Marketing Compliance: Ensure that all marketing personnel are aware of the detailed requirements of the Marketing Rule to avoid missteps that could lead to enforcement actions.
- Develop a Compliance Oversight Process: Establish a process for regular oversight, including legal review of advertisements before dissemination, to ensure all materials meet SEC standards.
For further details and specific advice tailored to your operations, please contact our consultancy team.
CRC keeps its thumb on the pulse of the evolving regulatory landscape. Keep an eye out for additional information, including updated guidance, risk alerts, and CRC’s thoughts on how to ensure successful compliance with evolving regulatory expectations within your firm’s existing regulatory compliance program.
Contact Mitch Avnet for further details: (646)346-2468 | mavnet@compliance-risk.com
