On December 16, 2025, the Securities and Exchange Commission (SEC) Division of Examinations released a risk alert highlighting staff exam observations of registered investment advisers’ (RIAs) compliance with the “Testimonials and Endorsements” and “Third-Party Ratings” provisions of amended Rule 206(4)-1 of the Investment Advisers Act of 1940 (the Marketing Rule). The alert noted that while some advisers demonstrated compliance with the Marketing Rule, others were deficient in a range of areas, including disclosures, oversight and compliance, the prohibition against compensating “ineligible persons,” and due diligence.
Takeaways
RIAs that use or may use testimonials, endorsements, and third-party ratings are on notice that their next SEC examination will focus, at least in part, on the RIA’s compliance with the Marketing Rule requirements noted in this advisory. RIAs should review their policies and procedures and update them as necessary to address the reminders below.
Testimonials and Endorsements: Rule 206(4)-1(b)
RIAs that directly or indirectly compensate individuals for giving testimonials or endorsements must comply with several conditions set forth in the Marketing Rule. According to SEC exam staff, common violations of those conditions include:
Disclosures
The most common mistake identified by the staff was failure to provide required disclosures at the time (or before) the testimonial or endorsement was disseminated. In other instances, advisers failed to provide one or more of the required “clear and prominent disclosures,” including whether the promoter was a current client or investor in a private fund advised by the investment adviser, whether the promoter was paid cash or non-cash compensation, and whether the promoter had a material conflict of interest, or provided disclosures in a manner that was not clear and prominent.
KEY REMINDER: As set forth in the Marketing Rule’s adopting release, hyperlinked disclosures fail to meet the “clear and prominent” obligation. The disclosures set forth in Subsection (b)(1)(i) of the Marketing Rule must be made within the testimonial or endorsement, must appear close (in proximity) to the testimonial or endorsement, and must be clear and conspicuous.
The staff also cited failure to provide a detailed description of the compensation provided for the testimonial or endorsement.
KEY REMINDER: Unless the party giving the testimonial or endorsement is a registered broker-dealer that qualifies for the exemption in the Marketing Rule, the disclosures must include the specific amount of cash compensation being paid. If the compensation is calculated as a percentage of the total advisory fee over a period of time, the disclosure must include the percentage and time period. If non-cash compensation is paid, the value of that compensation must be disclosed if readily ascertainable.
The staff also cited failures to disclose material conflicts of interest that arise not only from the compensation arrangements between the RIA and the party giving the testimonial or endorsement but also resulting from ownership or other close relationships between the RIA and that party.
Oversight and compliance
The staff also observed instances when advisers were unable to demonstrate that they had a reasonable basis for believing that a testimonial or endorsement complied with the Marketing Rule or had a written agreement with promoters describing the scope of promotional activities and the terms of compensation.
KEY REMINDER: RIAs must have written agreements with parties being compensated for testimonials or endorsements, and those agreements must address all aspects of the Marketing Rule’s requirements, including the disclosure process, representations and covenants regarding the “ineligible person” disqualification provisions, and the scope of the promotional activities and the exact terms of compensation.
“Ineligible persons”
RIAs are generally prohibited from compensating “ineligible persons” for testimonials or endorsements. The staff noted instances in which RIAs compensated “ineligible persons” when the RIAs knew or should have known that those individuals were disqualified.
KEY REMINDER: State actions against a promoter are included in the definition of “disqualifying event” under Advisers Act Section 203(E)(9), making the promoter an “ineligible person” under the Marketing Rule.
Promoters affiliated with the RIA
The Marketing Rule provides an exemption from the disclosure and agreement requirements for testimonials and endorsements made by certain affiliated parties, including an RIA’s partners, officers, directors, employees, and persons that control, are controlled by, or are under common control with the RIA.
KEY REMINDER: RIAs must disclose the affiliation of a person giving a testimonial or making an endorsement (if not otherwise readily apparent) at the time the testimonial or endorsement is made, and must document the individual’s status at that time.
Third-Party Ratings: Rule 206(4)-1(c)
RIAs may use third-party ratings only if they have a reasonable basis for believing that any questionnaire or survey used to prepare such ratings is structured in a fair way and not designed or prepared to produce any predetermined (i.e., favorable) result. The staff noted that some firms did not comply with those requirements at all, failing to update their policies and procedures and violating the third-party ratings provisions, while some updated their policies and procedures but failed to implement them.
Reasonable basis (due diligence)
In its examinations of RIAs, the SEC staff expected to see basic, common-sense steps to fulfill the due diligence requirements of third-party ratings.
KEY REMINDER: At a minimum, an RIA should (1) review publicly disclosed information about the third party’s questionnaire and survey methods; (2) obtain and review any questionnaires or surveys used in preparation of the rating; or (3) seek representations from the third party of how the questionnaires or surveys were designed, structured, and administered. Although the SEC’s risk alert used “and/or,” the prudent course of action is to take all three steps, which must be completed and memorialized each time an RIA decides to use a third-party rating.
Clear and prominent disclosures
RIAs must clearly and prominently disclose, or have a reasonable basis to believe that the third-party rating discloses the date the rating was given and the period of time on which it was based, the identity of the third party that created and tabulated the rating, and whether compensation was provided directly or indirectly by the RIA in obtaining or using the third-party rating.
KEY REMINDER: Using hyperlinks alone for the required disclosures is insufficient.
KEY REMINDER: If an RIA includes links on its website to third-party websites containing ratings of the RIA, the RIA must take steps to ensure that the required disclosures appear alongside the ratings on the third-party website.
If you have any questions, or would like additional information, please contact one of the attorneys on our Investment Funds team.
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