SEC Turns Spotlight on Adviser Shortfalls in Testimonials, Endorsements, and Ratings

By Thomas D. Giachetti, Esq. and Mittal Patel, Esq. 

As testimonials, endorsements, and third-party ratings appear across websites, social media, and other marketing channels, it remains critical that these practices comply with the Marketing Rule (“Rule”). In December 2025, the Securities and Exchange Commission’s Division of Examinations (the “Division”) issued a Risk Alert titled “Additional Observations Regarding Advisers’ Compliance with the Advisers Act Marketing Rule,” highlighting deficiencies it noticed related to advisers’ compliance with the testimonial, endorsement, and third-party rating provisions of the Rule. 

Understanding the Marketing Rule: An Overview

The Rule requires advertisements to be clear, balanced, and substantiated and establishes a standard for presenting performance results and using client testimonials and third-party endorsements. Investment advisers have a duty to ensure all marketing and advertising materials are accurate, complete, and not misleading. The Rule establishes conditions and disclosure requirements to prevent false or misleading statements and requires advisers to maintain policies and procedures to ensure compliance, including substantiating material claims upon request. Specifically, there must be full and conspicuous disclosure of all conflicts, and the information must be presented in a fair and balanced manner.

Testimonials and Endorsements

What are Testimonials and Endorsements Under the Rule?

A testimonial is a statement by a current client or private fund investor describing their experience with the investment adviser that directly or indirectly solicits or refers clients or investors. An endorsement is a statement made by a person who is not a current client or private fund investor that indicates approval, support, or a recommendation of the investment adviser that directly or indirectly solicits or refers clients or investors. 

Use of Testimonials or Endorsements Under the Rule

The Rule prohibits the use of testimonials and endorsements unless an adviser satisfies certain disclosure and oversight conditions: (i) clearly disclose whether the person is a current client, any compensation, and material conflicts; (ii) have a reasonable basis to believe disclosures are accurate and maintain written agreements outlining endorsement scope and compensation; and (iii) do not pay testimonials to ineligible persons. 

Advisers should not solicit testimonials solely from known satisfied clients but instead from all clients or a clearly defined group of clients. Testimonials should be presented in a fair and balanced manner, including (or providing clear access to) both positive and negative experiences. Advisers should avoid presenting only the most favorable testimonials first; instead, a defined, fair presentation methodology should be used.

Division’s Observations Related to Use of Testimonials and Endorsements

The Risk Alert identifies a number of deficiencies related to testimonials and endorsements, including: 

• Clear and prominent disclosures: Several advertisements included testimonials and endorsements without required disclosures, such as the individual’s client or investor status, compensation, or material conflicts of interest. Staff also found that disclosures provided via hyperlinks or small fonts were noncompliant, and some advisers posted third-party testimonials without indicating whether they were from current or former clients.
• Disclosure of material terms of compensation arrangements: Advisers did not disclose the material terms of compensation arrangements, or disclosures were generic and lacked sufficient detail.
• Disclosure of the material conflicts: Advisers failed to disclose material conflicts arising from their relationships with promoters or compensation arrangements for the testimonials or endorsements included in adviser’s advertisements. For example, staff observed instances where advisers failed to disclose material conflicts arising from promoters’ financial interests in the promoted advisers, including when the adviser's clients were investors in the promoted advisers or held roles in firms with sub-advisory or other significant arrangements. 
• Oversight and compliance: Advisers did not meet the requirement to have a reasonable basis for believing that testimonials or endorsements comply with the Rule. Staff indicated instances where advisers (i) did not recognize certain arrangements involving statements that met the definition of an endorsement or (ii) lacked written agreements with paid promoters that described the scope of the activities and terms of compensation for those promoter activities.
• Ineligible persons: Advisers violated the prohibition on compensating ineligible persons for endorsements when they knew, or should have known through reasonable care, that the promoters were ineligible at the time the endorsements were disseminated. For example, staff observed instances where promoters who were disqualified due to their disciplinary histories with state securities regulators received compensation from the adviser. However, per the above-referenced recent SEC guidance, an individual subject to a self-regulatory organization order for disqualifying conduct, but not barred or suspended, is not an ineligible person and may provide testimonials or endorsements if, for 10 years following the date of the order, the individual discloses the order and includes a copy thereof (or provides a conspicuous link to it on the self-regulatory organization’s website, if available). 
• Promoter affiliated with the adviser: Advisers used affiliated promoters without meeting the disclosure and agreement requirements of the Testimonials and Endorsements Provisions for testimonials or endorsements by certain individuals associated with the adviser. Affiliated promoters include, but are not limited to, the adviser’s partners, officers, directors, or employees. In some cases, the affiliation was not apparent or disclosed when testimonials or endorsements were disseminated and was revealed only later, when prospective clients or private fund investors were introduced to the advisers.

Third-Party Ratings

What is a Third-Party Rating Under the Rule?

A third-party rating is a rating or ranking of an investment adviser provided by an unrelated person, with such person providing ratings or rankings in the ordinary course of their business. Examples of third-party ratings include evaluations of investment advisers published by independent media outlets or financial publications, such as Barron’s and Forbes.

Use of Third-Party Ratings Under the Rule

The Rule prohibits using third-party ratings in advertisements unless the adviser reasonably believes the underlying surveys meet specified criteria, provide required disclosures, and are not designed to yield predetermined results. The adviser should provide clear and prominent disclosures indicating (i) the date the rating was given and the time period on which the rating was based, (ii) the identity of the rating provider, and (iii) whether any compensation was provided directly or indirectly to obtain or use the rating. 

Advisers should use caution when including older rankings, particularly if no subsequent rankings have been received. Such rankings may no longer accurately reflect the firm or its members and should be removed from marketing materials.

Division’s Observations Related to Use of Third-Party Ratings

The Risk Alert identifies several deficiencies related to third-party ratings, including: 

• Due diligence: Advisers did not perform sufficient due diligence to reasonably ensure that the third-party rating methodologies were not designed to provide predetermined outcomes. Staff noted that advisers had not established sufficient policies and procedures to satisfy the due diligence requirement, such as reviewing or obtaining the underlying questionnaires or surveys for third-party ratings. Staff provided examples of steps advisers could take to comply with the Rule, including (i) reviewing publicly available methodologies (ii) obtaining copies of questionnaires or surveys and (iii) seeking representations from the rating provider regarding the design, structure, and administration of the ratings.
• Clear and prominent disclosures: Advisers used third-party ratings without providing all required disclosures, including the rating date and period, the identity of the rating provider, and any direct or indirect compensation related to obtaining or using the rating (e.g., paid logo use, reprints, or priority placement). Staff indicated that compliance requirements were not met when disclosures used hyperlinks or small text or were placed at the bottom of website pages away from the actual rating.

Summary

The Division continues to focus on advisers’ marketing activities, making Rule compliance a priority during examinations. Advisers should ensure their Rule policies are tailored to their firm and fully implemented into practice. The Risk Alert illustrates the broad scope of the Rule and its reach across multiple marketing channels. Advisers may still showcase client satisfaction, recommendations, and industry recognition provided such materials comply with the Rule.

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Thomas D. Giachetti is a senior shareholder, and Mittal Patel is an associate of the Investment Management & Securities Practice Group of Stark & Stark, a 100+ attorney law firm representing investment advisers serving clients throughout the U.S. and abroad.

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