$1.2 Million in Marketing Rule Violations | 9 Firms Charged
SEC RELEASES
Introduction
On September 9th, 2024, the SEC announced charges against nine (9) Firms for Marketing Rule violations. The settlements amounted to $1,240,000 in combined penalties.
Previous Marketing Rule violations have mostly focused on hypothetical performance, but these enforcements targeted multiple aspects of the Marketing Rule listed that are listed below:
- Third-Party Ratings;
- Testimonials; and
- Material Statements of Fact.
We have provided a synopsis of the charges below relating to the Marketing Rule violations that occurred.
What Happened?
- Third-Party Ratings
- Firms made material statements of fact about Third-Party Ratings without disclosing the time periods of the rating or when the ratings were awarded, along with providing materially misleading statements.
- Examples are below:
- Claiming to be a “top 12 financial advisor” when the ranking was top 1200 and claiming to be a “top 100 women’s advisor” instead of “top 100 women financial advisors”.
- Claiming to be one of 500 top advisers without disclosing that the ranking was from 2007.
- Claiming to be a “Barron’s Top Advisor” despite the award being from 2018.
- Reporting a top wealth manager selection for 14 years without documentation proving the consecutive 14-year award.
- Advertising awards that were awarded 20 plus years ago
- Claiming to be a member of an organization that did not exist.
- Testimonials
- Providing testimonials from clients without disclosing financial compensation, whether the testimonial is a current client, or any other important material facts.
- Examples are below:
- Claiming to be the official wealth management partner of an athletic program despite them not being a current client and financial compensation was provided for the endorsement.
- Providing testimonials on a website from previous clients, one of which there was no evidence existed.
- Material Statements of Fact
- Claims were made about Firms in a context that is misleading.
- Examples
- Advertising that advice provided is “conflict-free”, “unbiased”, and “best-in-class”.
- Claiming that their firm is a “true fiduciary” that “eliminates conflicts of interest”.
- All Firms claiming to be conflict-free or without bias reported conflicts of interest on their Form ADV Part 2a.
Vigilant’s Conclusion
Firms need to assess their Marketing Review Practices and integrate a review process that documents compliance with the Marketing Rule.
As the SEC expands its investigation into Marketing Rule compliance, it appears that Firms will continue to face penalties for presenting advertisements that are in clear violation.
Third-Party Ratings need to disclose the year of the award and the time period surveyed, at a minimum. Testimonials need to disclose if they are not from current clients, were financially compensated, or any other conflicts of interest. Material statements of fact cannot be misleading, and Firms should be able to substantiate the claims they make in advertisements.
Reach out to us today to discuss how your Firm can potentially avoid making costly mistakes with advertisements.