SEC exam sweep short but not sweet 

The SEC marketing rule, which runs for 430 pages, can be complicated. But the agency’s exam sweep on compliance with the rule is straightforward. 

The Securities and Exchange Commission is assessing how investment advisors are adhering to the regulation when advertising their firms. The measure, which allows advisors to use client testimonials and endorsements for the first time, went into force last November. 

Exam sweeps tend to generate anxiety among advisors, especially when they zero in on a rule with which many of them are wrestling. But advisors who are targeted in the review don’t need to worry that the SEC will engage in a particularly complex probe. 

Agency examiners will review an advisory firm’s inventory of ads, according to a document request list obtained by InvestmentNews. It also asks for the following items, if they’re not included in the ad inventory: sponsored events, attended events, public audio and video programs, client/investor presentations, newsletters and other client/investor communications and testimonials and endorsements. 

“Nothing is a surprise,” said Bernadette Murphy, managing director at Vigilant, a compliance consulting firm. “It’s not that big a list, as long as the advisor is doing what they’re supposed to do under the new rule.” 

Keeping examples of advertising and the background material related to the ads is crucial to doing well on an exam. 

“Save any supporting documents for claims you make,” Murphy said. “Books and records are the cornerstone of what you’re putting in your advertising.” 

In guidance about the rule, the SEC has emphasized that advisors must substantiate the claims they make when touting their business. 

“That has been at the heart of the sweep,” said Amy Lynch, president of FrontLine Compliance. 


SEC enforcement actions that have resulted from the sweep so far have focused on an aspect of the rule that is causing some confusion — performance marketing. The rule allows it but also puts some restrictions around it. 

Over the past five weeks, the SEC has imposed a penalty of more than $1 million on robo-advisor Titan Global Capital Management USA and total penalties of $850,000 on nine other advisory firms for violations involving portrayals of hypothetical performance. 

The use of testimonials and endorsements likely will draw the SEC’s attention. 

“I think testimonials are low-hanging fruit,” Murphy said. “Does the testimonial add so much value that it’s worth risking the SEC’s scrutiny?” 

That’s the attitude many advisory firms are adopting for now, according to observers. Not many have begun posting testimonials and endorsements. 

But more firms could embrace testimonials as they see their peers get through the exam sweep unscathed, said Brian Thorp, founder and CEO of Wealthtender, a digital marketing platform. 

“As more of these stories get out, that will provide a greater level of comfort for compliance departments and firm leadership,” Thorp said. “The majority of firms are in a great position to come through squeaky-clean.”

Leave a Reply

Your email address will not be published. Required fields are marked *