New SEC Marketing Rule: How to Use Testimonials

There are three disclosures:

Whether the testimonial was given by a current client,
Whether cash or non-cash (e.g., a fee reduction, extravagant or frequent firm-paid entertainment, etc.) compensation was provided for the testimonial and the terms of the compensation agreement; and,
A statement of any material conflict of interest (e.g., is the person or entity providing the testimonial a compensated promoter; if yes, the promoter has an incentive to recommend the advisor, resulting in a material conflict of interest).

The clear and prominent disclosures may be part of a “layered disclosure” approach, where a succinct, tailored disclosure is included with the advertisement, and a more detailed disclosure on content such as compensation arrangements and material conflicts of interest could then be provided through hyperlinks, supplementary document or the end of a slide deck.

How to Use Google Reviews

Many businesses, including RIAs, have Google Business pages where the public can leave a public review of the business. While Google reviews are not specifically advisor-created advertisements, they are subject to compliance oversight. For this reason, we strongly recommend that Google review pages include general testimonial disclosure. 

If an advisor requests that clients furnish a Google review, the advisor must follow the guidelines on obtaining testimonials. The advisor is not permitted to cherry-pick client reviews and is required to ask all clients to leave a review. If the advisor shares such a review on its website, he or she is required to make the same disclosures, and should also ask the reviewer for permission to share the review.

Advisors are not permitted to skew the results or hide negative reviews left on Google. Specifically, the advisor should not access third-party site tools to review and hide certain testimonials. 

The firm may use third-party website tools for analytics or internal review purposes. However, no public-facing changes can be made to client reviews. An exception to this rule exists when a review is edited for pre-established, objective criteria such as profanity, or defamatory or threatening language.

Good Luck!

The marketing rule unlocks a broad range of new advertising avenues for advisors. However, there are potential compliance-related minefields.  

Thomas D. Giachetti is chairman of the Investment Management and Securities Practice of Stark & Stark. A former investment banker and NASD registered representative. Joseph C. Antonakakis is an Associate and member of the Investment Management & Securities Practice.

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