/SEC Charges Investment Advisers and Representatives for Violating Testimonial Rule

SEC Charges Investment Advisers and Representatives for Violating Testimonial Rule

WHAT HAPPENED?

On July 10th, 2018, the Securities and Exchange Commission (SEC) settled proceedings against two registered investment advisers, three investment adviser representatives and a marketing consultant for distributing advertisements containing testimonials on the internet.

The term “testimonial” has not been explicitly defined by the SEC, however, the staff consistently considers the term to include a “statement of a client’s experience with, or endorsement of, an investment adviser.”

According to the SEC, the group of registered investment professionals hired the marketing consultant to solicit and compile testimonials from their clients.  The testimonials were published on various websites, including Yelp and YouTube, and included information regarding the advisers and the advice and services provided to their clients.

Without admitting or denying the SEC’s orders, the group of registered investment professionals and the marketing consultant agreed to cease-and-desist.  The marketing consultant is to pay civil penalties of $35,000, the registered investment advisers are to both pay civil penalties of $15,000 and the three investment adviser representatives are to each pay $10,000 in civil penalties.

WHAT DOES THIS MEAN FOR ME?

Under the Investment Advisers Act of 1940 (“Advisers Act”), the Testimonial Rule forbids the use of a testimonial by an investment adviser because “the testimonial may give rise to a fraudulent or deceptive implication, or mistaken inference, that the experience of the person giving the testimonial is typical of the experience of the adviser’s clients.”  For more information, a guidance update on the Testimonial Rule and social media was released by the SEC in March 2014.

Any exceptions to the Testimonial Rule must comply with a relevant No-Action Letter.  For example, Dalbar, Inc., SEC No-Action Letter (Mar. 24, 1998) or Cambiar Investors, Inc., SEC No-Action Letter (Aug. 28, 1997).

For more information on advertising and the Testimonial Rule, please reach out to Fairview® directly.

About the Author:

Fairview®
Founded in 2005 with the goal of developing streamlined back office solutions for investment advisers, Fairview® is now servicing investment advisers, foundations and funds with over $185 billion in collective assets.