The New SEC Advertising Marketing Rule Explained By A Marketer

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The new SEC Marketing Rule is designed to comprehensively and efficiently regulate advisers’ marketing communications with clarifications related to endorsements, testimonials, and third-party ratings. The new Marketing Rule’s framework is a combination of  principles-based provisions and requirements for certain types of advertisements But, what does this mean for your marketing strategy?  

The Marketing Rule, Your Business, and Your Marketing Strategy 

Agents and advisors can ask customers for referrals, testimonials, and use those testimonials in advertising  starting May 4, 2021. They will need to meet certain compliance measures including maintaining disclosures, reasonable bias, and disclosing any compensation for referrals, endorsements, or testimonials.   

Currently, insurance-only producers and registered reps (Series 6 or 7) with a broker dealer can use testimonials subject to the Marketing Rule guideline starting on May 4, 2021. This applies to SEC-registered Investment Advisor Representatives (IARs) only and not state-registered IARs.  It’s important to note that the individual states will need to adopt the SEC regulations before those IARs will be able to utilize testimonials.  

When testimonials are used, agents and advisors will need to develop and implement a system of supervision and oversight over this marketing practice. This is always required for advertising but it’s particularly important for social media advertising, as the SEC has previously weighed in on the need to supervise social media advertising.  

This is ruling is exciting news for advisors as the reforms make it easier to provide current and potential investors with useful information in the form of testimonials, endorsements, and third-party ratings (subject to conditions) that could help you stand out from your peers. Testimonials are viewed as a trusted, third-party validation that reflects you, your business, and how you treat your clients.

Testimonials and Referrals: An Important Component of your Marketing Strategy 

With social media and online communities a click away, prospective clients and customers can engage with others about your brand, products, or services via reviews, testimonials, and endorsements. In fact, 97% of B2B customers cited testimonials and peer recommendations as the most reliable type of content.  

Testimonials and referrals also impact purchasing behavior. Eighty-six percent of customers said online reviews were at least “moderately important” when they were shopping for a new product.  

Endorsements, referrals, and testimonials can help instill trust in your business, validate your expertise, or service. They also have positive impact on your digital presence and marketing – driving an increase in search traffic, increase conversions i.e. people who take action on your website, and can lead to an increase in revenue. Using customer testimonials regularly can generate approximately 62% more revenue. 

Under the new Marketing Rule, how do you remain compliant when integrating referrals, endorsements, and third-party ratings into your marketing strategy?  

Agent/Advisor Role in Marketing Rule Compliance  

Investment advisers must ensure that marketing activities related to their private funds adhere to the requirements of the Marketing Rule. We recommend that you familiarize yourself with the Marketing Rule provisions, requirements, and prohibitions. For a full list, visit the SEC Investment Advisor Marketing Fact Sheet.  

There are additional requirements specific to thirdparty ratings and endorsements.  

  • Third Party Ratings: Agents and advisors are expected to maintain reasonable bias and complete disclosures for third party ratings. Reasonable basis is referred to as the belief that any questionnaire or survey used in the preparation of the third-party rating is structured to make it equally easy for a participant to provide favorable and unfavorable responses and is not designed or prepared to produce any predetermined result.
  • Endorsements: Agents and advisors will need to comply with certain disclosure, oversight, and disqualification provisions. These three conditions are known as: Mandatory Disclosure, Oversight Requirement, and Disqualifying Provisions.  

Penalties for non-compliance with SEC advertising regulations can take a number of forms, but usually involve a fine. If there are repeated or particularly egregious violations found, penalties can increase to include suspension or revocation of registration and livelihood. 

Marketing Rule Disclosures for Testimonials, Endorsements, and Third-Party Ratings 

There are several disclosures that agents and advisors need to provide to follow the Marketing Rule. These include: 

  • Third Party Rating Disclosure: A third-party rating used as an advertisement requires a clear and prominent disclosure of the following elements: 
    • Date of the rating was given. 
    • The time period on which the rating is based. 
    • If a third-party was involved in creating and tabulating the rating.
    • If any compensation was provided directly or indirectly to obtain or use the rating. 
  • Mandatory Disclosures – Testimonials: Advertisements must clearly and prominently disclose whether the person giving the testimonial or endorsement (the “promoter”) is a client and whether the promoter is compensated. Additional disclosures are required regarding compensation and conflicts of interest.  
  • Oversight Requirement and Written Agreement. An adviser that uses testimonials or endorsements in an advertisement must oversee compliance with the marketing rule. An adviser also must enter into a written agreement with promoters, except where the promoter is an affiliate of the adviser or the promoter receives de minimis compensation (i.e., $1,000 or less, or the equivalent value in non-cash compensation, during the preceding twelve months 

What’s Next 

There will be an eighteen-month transition period between the effective date of the rule and the compliance date. Investment advisers subject to the rule may transition their practices to comply with the final rule in full at any point during the 18-month transition period after the effective date.    

DMI is ready to help you navigate and explore the Marketing opportunities created by these amendments. We’re committed to providing our customers and your clients customer-focused products, award-winning marketing services, sales consulting, and operations support. 


Additional Resources: 

SEC Final Rule 5653: 

SEC Investment Advisor Marketing Rule Fact Sheet: