What SEC examiners found when firms promoted their awards in news releases

Key takeaways:  

• Exam findings treat news releases promoting third-party ratings as advertisements under the SEC Marketing Rule. 

• The most common problems are marketing habits, not compliance failures—undisclosed logo and reprint fees, inaccurate year ranges for recurring awards, disclosures parked behind a hyperlink. 

• Promoting credible ratings is still expressly permitted. The work is in the methodology paragraph of the release, which now has a few more questions to answer.

In 2022, before the SEC Marketing Rule’s compliance date, we asked whether a news release promoting a top-advisor list should be treated as an advertisement. Our answer then: probably, but best practices were still evolving and the fine points needed to be shaped by compliance professionals. 

The fine points arrived in a Risk Alert on advisers’ use of third-party ratings late last year. In the Risk Alert, the SEC’s Division of Examinations lists where its staff found non-compliant material: firms’ websites, social media profiles, marketing brochures and pitchbooks, newsletters and blogs … and press releases. This applies to SEC-registered investment advisers, including asset and wealth managers. Awards for registered funds follow a different set of rules—and we’ll follow up with a future post addressing mutual-fund awards.  

Why a release counts 

The reasoning hasn’t changed. A news release promoting a third-party ranking meets the SEC’s definition of an ad because one purpose is to “offer” the firm’s securities-related services to prospective clients—even if indirectly. 

The intuition here is that a top-advisor list is used to make the public aware of the advisors featured. When a firm promotes its inclusion, it implicitly adopts that purpose. The same goes for social media posts that use the news release as background. 

The two conditions 

The Marketing Rule expressly permits promoting third-party ratings, provided the rater is a true third party that conducts ratings in the normal course of its business and the advisor fulfills two requirements: 

• Due diligence requirement. The RIA must “have a reasonable basis for believing that any questionnaire or survey used in the preparation of the third-party rating is structured to make it equally easy for a participant to provide favorable and unfavorable responses, and is not designed or prepared to produce any predetermined result.”  

• Disclosure requirement. The RIA must disclose (or ensure the third-party rater has disclosed) the date of the rating and the period it covers, the identity of the third party that created and tabulated it, and, if applicable, that the adviser provided compensation directly or indirectly in connection with obtaining or using it. 

These disclosures must be presented with equal prominence as the rating itself. 

Due diligence: what passed 

In 2022, we suggested it might be necessary to inquire of the rating firm about its methodology. The Risk Alert describes what examiners saw advisers doing successfully: 

• Reviewing the rater’s publicly disclosed methodology 

• Obtaining the questionnaire or survey itself 

• Getting representations from the rater about how the questionnaire was designed, structured and administered 

Where advisers fell short, examiners generally found no written procedures for meeting the requirement and no record of having taken any of these steps. 

Where the disclosures broke down 

Several findings in the same Risk Alert describe routine marketing practices more than compliance failures: 

• Advisers paid for use of a rater’s logo, for reprints, or for priority placement in the rater’s own advertising—and didn’t disclose the payments where they posted the rating. 

• Some paid a fee just to be considered for a rating. Also compensation, also undisclosed. 

• Disclosures behind a hyperlink didn’t satisfy “clear and prominent.” Neither did smaller type or placement at the bottom of the page, away from the rating. 

• Advisers who linked to the rater’s page hosting the rating were still responsible when neither party made the required disclosures. 

• Some listed a range of years for a recurring award that included a year the firm didn’t win. 

• A logo alone didn’t always identify who created and tabulated the rating. 

Law firm summaries of the Risk Alert have made the same point from the compliance side: examiners are reading the presentation, not just the claim. 

Putting the pieces together 

A news release remains a natural way to promote a third-party rating, including as background for social media posts. Its format can readily accommodate the need for disclosure. In fact, RIAs and their public relations partners may already have been fulfilling most or all of the disclosure requirements for years. It’s typical to include a paragraph about methodology in the closing paragraphs of a release, prior to the boilerplate section. 

That paragraph just has a few more questions to answer now. Who created and tabulated the rating—in text, not only a logo? What date, what period, and are the years right? Did the firm pay anything in connection with the rating, including entry fees or logo licensing? And are the disclosures in the release itself, at least as prominent as the rating? 

The due diligence requirement remains straightforward for most industry-specific ratings and rankings, as it’s likely in the interest of the third-party rater to provide the needed information. (Where this requirement may be harder, by contrast, is seeking assurance from the likes of Google or Yelp that ratings methodologies are fair. In that case, the rating firm may be reluctant to share much or anything.) 

The bottom line from 2022 holds: promoting ratings—so long as they are credible!—continues to be possible. What’s new is the evidence that the details most likely to trip up a firm are the ones handled by marketing, not compliance.