Articles Tagged with Testimonials

On November 4th, the SEC released for public comment proposed replacements to its decades-old advertising and cash solicitation rules. The proposed rules, which are accompanied by almost 500 pages of explanatory text, are now subject to the SEC’s “notice and comment” process, whereby interested persons will have 60 days to file comments to the SEC, after which time the SEC will likely issue final versions of the new rules. While the content of the final rules ultimately adopted by the SEC may differ substantially from the versions now being circulated, the current proposals are the most likely outcome at this point in time and offer valuable insight into the SEC’s thinking in this area.

According to the SEC, both the advertising and cash solicitation rules are ripe for updates and modernization as a result of “changes in technology, the expectations of investors seeking advisory services, and the evolution of industry practices.” Notably, the advertising rule (Advisers Act Rule 206(4)-1) has been largely untouched since its adoption in 1961. Likewise, the cash solicitation rule (Advisers Act Rule 206(4)-3) has not been amended since its adoption in 1979. In this installment of our blog, we will outline some of the more salient points of the SEC’s proposal to replace the advertising rule. Look for our discussion of the proposed cash solicitation rule amendment in an upcoming post.

Proposed Amendments to the Advertising Rule

On July 10, 2018, the Securities and Exchange Commission published five Orders Instituting Administrative and Cease-and-Desist Proceedings against two registered investment advisers, three investment adviser representatives, and Leonard S. Schwartz, a marketing consultant.  The Orders allege that the respondents violated the Investment Advisers Act’s Testimonial Rule (275.206(4)-1(a)(1)).  The SEC also alleged that another investment advisory firm, Romano Brothers & Company (“Romano Brothers”), violated the Testimonial Rule by posting two videos on YouTube featuring client testimonials. The Testimonial Rule provides that investment advisers and their representatives are forbidden from publishing, circulating, or distributing advertising materials that directly or indirectly refer to client experiences about the investment adviser and its services. The SEC considers publication of client testimonials fraudulent because testimonials typically present a biased evaluation of an investment adviser’s services. Continue reading