Division of Examinations Issues Risk Alert Highlighting the Challenges of Marketing Rule Compliance for Testimonials, Endorsements, and Third-Party Ratings.

Background:

On December 16, 2025, the SEC Division of Examinations issued a Risk Alert highlighting additional compliance deficiencies observed under the Advisers Act Marketing Rule, with a focus on testimonials, endorsements, and third-party ratings.
The Risk Alert appears to be based on a substantial number of examination observations, indicating that compliance with the Marketing Rule is within scope for a significant portion of SEC exams.
While violations related to testimonials and endorsements are often viewed as technical or “foot fault” issues, under a different administration some of these deficiencies could be elevated into enforcement actions, particularly ones which have the potential to be viewed as misstatements to investors by third parties.
Although Risk Alerts do not carry the same authoritative guidance as rules, FAQs, or interpretive releases, examiners review them when conducting future exams, making them an important reference point for compliance efforts.

Staff Observations:

Testimonials and Endorsements:

General:
- The most common violation was missing disclosures.
- Many firms failed to identify that certain arrangements qualified as testimonials or endorsements, including website statements, lead-generation firms, influencers, and refer-a-friend programs.
- Some firms lacked adequate policies and procedures to ensure compliance.
  - Analysis: It is not always straightforward to determine whether a communication qualifies as a testimonial, particularly when third parties are involved in capital placement or when content appears on a website.
Clear and Prominent Disclosure:
- Common disclosure deficiencies included the use of hyperlinks in place of full disclosures and disclosures presented in smaller or lighter font than the related testimonials or endorsements.
- Some advisers reposted testimonials and endorsements from third-party websites on their own websites without providing clear and prominent disclosures.
- Certain advisers offered non-cash compensation (such as gift cards) in exchange for reviews on third-party websites without a reasonable basis to believe that the reviewers complied with the disclosure requirements applicable to paid testimonials.
  - Analysis:
    - The use of hyperlinks, footnotes (which are naturally smaller than the main text), variations in font size, and, at times, different font colors can be necessary to keep marketing materials readable and digestible. As long as a firm is not using these formatting choices to obscure required disclosures, many firms may reasonably conclude that the benefits of clear, investor-friendly presentation outweigh the risk of a potential technical compliance violation.
    - The non-cash compensation observation points to the difficulty of recognizing some practices as testimonials.
Disclosure of Compensation Arrangements:
- Some advisers failed to adequately disclose material compensation while others relied on overly generic disclosures.
  - Analysis: Commercial sensitivities may limit promoters’ willingness to disclose specific compensation terms, creating practical compliance challenges. Given competing requirements, it may be worth avoiding exact precision (for example by describing the basis of fees without specifying exact percentages) even if it risks a technical compliance violation.
Other Observations:
- Disclosure of material conflicts — Certain financial relationships were not disclosed, including situations where a promoter held an ownership interest in the adviser.
- Oversight and compliance — Advisers failed to meet key endorsement compliance requirements, including lacking a written promoter agreement and misapplying the de minimis compensation exemption.
- Ineligible persons — Advisers compensated promoters for endorsements despite the promoters being ineligible persons.
- Promoter affiliated with adviser — Advisers failed to properly rely on the affiliated-person exemption; some affiliations were unclear or disclosed only later in the investor onboarding process.

Third Party Ratings:

Due Diligence:
- Some advisers had insufficient or non-existent due diligence policies and procedures, conducted insufficient diligence, and employed processes that appeared designed to produce predetermined outcomes.
  - Analysis: The adequacy of due diligence for third-party ratings can be challenging, as it requires the exercise of regulatory judgment. Reviewing each award and retaining documentation supporting the basis for the rating is considered a best practice.
Clear and Prominent Disclosure:
- Advisers used third-party ratings without required disclosures, including clear identification of the rating date, applicable time period, and the third party that created the rating.
- Advisers failed to clearly and prominently disclose compensation and other required information related to third-party ratings, including payments for logo use, reprints, enhanced placement, or referrals, often relying on hyperlinks, small font, or disclosures placed away from the ratings.

Takeaways:

Marketing Rule Compliance Will Be a Common Exam Topic: This is driven by several factors: (1) the rule is supported by a substantial body of FAQs and public guidance, making it both well-defined and complex, which increases the likelihood of identifying violations; (2) all advisers engage in marketing, and in a challenging capital-raising environment there are strong incentives to push marketing boundaries, something examiners are well aware of; and (3) marketing materials are distributed directly to investors, making them a higher-risk area. As a result, examiners are drawn not only to potential technical violations but also to the possibility of uncovering misleading or fraudulent disclosures, ensuring continued scrutiny of this area.
Marketing Compliance Requires Judgment and Expertise: This Risk Alert illustrates that some examiners apply a very strict, and at times commercially impractical, interpretation of the Marketing Rule. As a result, advisers face two competing risks: the risk of noncompliance with the rule and the risk that overly restrictive compliance approaches may impede fundraising to the point that sufficient capital cannot be raised. Balancing these competing considerations requires sound regulatory judgment. Developing this expertise internally, or engaging experienced outside advisers, is critical to navigating these tradeoffs effectively.