Marketing Rule Audits: Can Your Firm Pass The Test?

The SEC and state regulators have begun conducting “special exams” — limited-scope reviews designed to assess one critical area: compliance with the marketing rule. While focused, these exams pose a significant trigger point for RIAs, necessitating a detailed audit of marketing materials and procedures to confirm adherence to the rule's intricate requirements.

What Regulators Are Watching

Here's a breakdown of what we’ve seen regulators examine in special exams:

• Use Of Testimonials & Endorsements:
  • Are required disclosures present?
  • Are compensation arrangements properly disclosed?
  • Are written agreements with promoters or solicitors in place?
  • Are reviews and social media posts compliant?
• Performance Advertising:
  • Is performance data misleading or "cherry-picked"?
  • Is the use of hypothetical or projected performance appropriate?
  • Are appropriate disclosures and risk considerations included?
• Third-Party Ratings & Rankings:
  • Are methodology and potential biases properly disclosed?
  • Is context and source information provided?
• Substantiation Of Marketing Claims:
  • Are adequate records maintained to support statements made in advertisements?
• Form ADV Disclosures:
  • Are marketing-related disclosures consistent with actual practices?
• Books & Records Compliance:
  • Are required records related to advertisements, testimonials, and performance data maintained?
• Policies & Procedures:
  
  • Do internal policies exist, and are they effective in ensuring compliance?

The Questions That Matter

Special exams use targeted questions to assess an RIA's compliance. Be prepared also to answer the following key questions.

• Marketing Activity: Did you engage in marketing in 2024? What types? What are your plans for 2025?
• Third-party Usage: are you using third-party marketing consultants?
• Testimonials & Endorsements: Are you using them? Do your policies address them?
• Compensation: Are you compensating anyone for reviews or referrals?
• Performance Representations: Are you using them? Do you have supporting records?
• Hypothetical Performance: Are you using it? Do you have policies governing it?

Why This Matters

The increase in these special exams indicates a clear regulatory priority. The SEC and state regulators are committed to ensuring that RIAs adhere to the marketing rule and protect investors from misleading or deceptive advertising.

What RIAs Should Do

To prepare for potential scrutiny, RIAs should:

• Conduct a thorough review of all marketing materials — verify adherence to the marketing rule's requirements.
• Review and update policies and procedures — confirm all aspects of the marketing rule are covered.
• Strengthen record-keeping practices — maintain accurate and complete records of all marketing activities.
• Verify Form ADV accuracy — confirm that marketing-related disclosures are consistent with actual practices.
• Provide employee training — educate employees on the marketing rule's requirements.
• Consider a compliance audit — an independent audit from AdvisorLaw can help identify potential weaknesses.

The message is clear: the marketing rule is a priority for regulators. RIAs must take proactive steps to maintain compliance and avoid potential penalties. By understanding the focus areas of these special exams and taking appropriate action, RIAs can mitigate risk and protect their businesses.

Reach out to AdvisorLaw today for more information on how we can help your RIA firm remain compliant with the SEC’s marketing rule. Learn more about our RIA Compliance services.