SEC examiners continue to find violations of its amended marketing rule, including advisers falsely claiming to be “free from all conflicts,” according to a new risk alert.

Warning of danger posted by the Commission's Examinations Division this week is the third related to the marketing rule and the second since firms were required to comply with the rule (the first was released in June 2023).

The newer alert focuses more on specific types of potential violations, including misstatements on ADV forms and improper books and records. However, SEC examiners also found firms making untrue and unsubstantiated claims in marketing materials.

These included the aforementioned (and false) claim to be conflict-free, as well as “wrong” staff qualifications and reference to investment mandates for advisers at a firm when no such mandates (such as ESG mandates) were used.

Some ads also omitted necessary information; for example, some firms claimed that their advisers differed from others because they acted in the client's best interest without disclosing that this was required of all SEC-registered advisers. In some cases, ads would use images of celebrities that falsely implied they endorsed the firm.

The marketing rule came into force in May 2021, with a compliance date set for the end of the following year; Then-SEC Chairman Jay Clayton called the amended advertising rules an effort to revise requirements that the commission had not re-evaluated in decades.

Among other changes, the rules allowed the use of testimonials and endorsements in advertising under certain conditions and with appropriate disclosures. However, the rule also limited hypothetical performance in advertising (which has been the focal point of some of the enforcement actions related to the rules of the SEC until now).

The risk alert pointed out that the firms had not used hypothetical performance in the ads in sections of their Form ADV, violating the new rules.

Examiners also found cases where testimonials in ads were misleading. In one example, advisors used testimonials from customers of a third-party product on the advisors' website without disclosing that the testimonials were about the advisors' services and not the product. Many firms have not decided to swim in those waters, with an IAA survey last July that only 5% of firms increased their use of testimonials as a result of the advertising rule.