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Some financial advisers will have more flexibility with their marketing starting in the fall of 2022.

 The Securities and Exchange Commission updated investment-adviser marketing rules that go into effect on Nov. 4, 2022. The rules allow advisers to use testimonials, endorsements, and third-party ratings as long as they comply with anti-fraud protections and other conditions.

The marketing rule applies to any investment adviser registered or required to be registered with the SEC that directly or indirectly disseminates an advertisement. Generally, they apply to advisers with more than $110 million in assets under management.

What Changed Exactly Under the New Marketing Rule

The SEC changed the definition of advertisements to include any direct or indirect communication from an adviser to more than one person that offers the adviser’s new investment advisory services to existing or prospective clients. The new rule also applies to indirect communications, such as social media comments and non-written communications, like pre-recorded videos. All advertisements must not be “materially misleading.”

The rule has some notable exceptions. It does not generally consider communications with existing clients that do not offer new or additional advisory services to be “advertisements,” and extemporaneous live communications are also exempt.

 Most importantly for advisers, the rule will allow testimonials and endorsements under certain conditions.

When Can Advisers Use Testimonials and Endorsements

The marketing rule permits testimonials and endorsements in an advertisement if the adviser satisfies certain disclosure, oversight, and disqualification provisions. Here are the key points in each area:

• Disclosures: Advertisements must clearly and prominently disclose whether the person giving the testimonial or endorsement is a client and whether the promoter is compensated. Additional disclosures are required regarding compensation and conflicts of interest.
• Oversight and Written Agreement: An adviser who uses testimonials or endorsements in an advertisement must oversee compliance with the SEC’s marketing rule.
• Disqualification: The rule prohibits certain “bad actors” from acting as promoters for compensation, subject to exceptions where other disqualification provisions apply.

 Expect other regulators to follow the SEC’s lead on marketing practices. The Financial Industry Regulatory Authority recently updated its frequently asked questions guidance to explain how its ad rule is consistent with the SEC’s new marketing rule. And many state securities regulators, who oversee advisers with less than $110 million in assets under management, may change their marketing rules to conform to the SEC’s rule.

What Advisers Should Do Now to Comply With the New Rules

Advisers can take several steps now to prepare for the rule when it goes into effect next fall. Law firm Arnold & Porter identified three steps advisers can take now:

• Update any investor communications that would be considered advertisements
• Adopt policies and procedures that govern communications with clients, social media use, online marketing, and the use of testimonials and endorsements
• Prepare to comply with expanded recordkeeping requirements, which include performance-related communications and calculations of private funds and proprietary accounts

Ebix’s SmartOffice can adapt to the recordkeeping requirements for the new SEC marketing rule, delivering a true practice management experience to financial advisers.