June 15, 2021

Jim Lundy Discusses What New SEC Advertising and Marketing Rule Compliance May Look Like Under SEC Chair Gensler

ThinkAdvisor shared insights from a webinar in which SEC and regulatory enforcement defense partner Jim Lundy cautioned advisers to tread carefully when using testimonials and endorsements before the Securities and Exchange Commission’s (SEC) advertising and marketing rule’s Nov. 4, 2022, compliance date.

In “Be Careful With Testimonials, Endorsements Under the SEC’s New Ad Rule,” Lundy said that while he doesn’t “see a black-and-white, yes-or-no answer” on whether advisory firms should start using testimonials and endorsements now, firms would be doing so at their own risk.

Additionally, that risk “is going to be heightened” under SEC Chair Gary Gensler, Lundy explained. He added, “We’ve seen some very hawkish statements by the new chair … and we’ve seen hawkish statements by the new leadership in the SEC divisions. That’s who we’re going to be confronted with when examiners come out in the field to examine compliance with this rule.”

Lundy also noted that the SEC “has been touting for years now that they have a risk-based” approach to exams. “It seems to me that firms that are putting out endorsements and testimonials early … closer to the effective date versus the compliance date, may be viewed as higher risk and may be higher up on a priority list to be examined for compliance with the new rule,” he continued.

Overall, Lundy emphasized that the bottom line is not to put the cart before the horse when considering the use of testimonials and endorsements. He said, “It gets back to the importance of having that infrastructure, of compliance and supervisory policies, procedures and processes in place to support what you’re trying to accomplish.”

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