The Securities and Exchange Commission (“SEC”) has fined nine registered investment advisors (“RIA”) which purportedly violated the SEC’s Marketing Rule. In a statement, the SEC announced it has settled charges against RIAs that allegedly distributed advertisements containing untrue or unsubstantiated claims, as well as testimonials, endorsements, or third-party ratings without the required disclosures.

According to the SEC, the RIA’s agreed to civil penalties totaling $1.24 million. Among the firms penalized, Abacus Planning Group Inc. will pay $150,000, while AZ Apice Capital Management faces a $70,000 penalty. Other companies, such as Beta Wealth Group Inc. and Richard Bernstein Advisors, are also contributing significant amounts, paying $80,000 and $295,000, respectively. Integrated Advisors Network, a Texas-based firm, was hit with the largest penalty – $325,000.

According to Corey Schuster, co-chief of the SEC Division of Enforcement’s Asset Management Unit, “[t]he advertisements at issue in each of these actions violated the Marketing Rule and posed a serious risk of misleading investors.” Abacus and Callahan Financial published advertisements that contained untrue statements regarding third-party ratings. Callahan Financial also falsely advertised it was a member of a non-existent organization, according to the regulator.

Meanwhile, the SEC found AZ Apice, Droms Strauss Advisors, and Integrated Advisors Network’s advertisements held them out as providers of conflict-free advisory services, which the firms were not able to substantiate. Beta Wealth, a California-based firm, was charged for disseminating ads regarding a distinction given to one of its principals without being able to back up that material statement of fact.

Howard Bailey Securities faced scrutiny for promoting testimonials that were not provided by current clients. The SEC also called the firm out for using endorsements from an individual that appeared on social media and videos without revealing the person was a non-client and a paid endorser. The SEC also flagged Abacus, Beta Wealth, Professional Financial, and Richard Bernstein Advisors for using third-party ratings without showing when they received those rating or for what periods of time those ratings applied. Some of those ratings, the regulator found, were over five years old.

All nine firms settled without admitting or denying the SEC’s findings.

SEC Rule 206(4)-1 (the “Marketing Rule”) took effect on November 4, 2022. The Marketing Rule applies to SEC-registered investment management firms in the United States and those firms globally who market investment products in the US. The first overhaul of SEC advertising rules since 1961, it allows investment advisers for the first time to use testimonials and endorsements.

The biggest challenge for complying with the SEC Marketing Rule is determining which information is considered “performance” that must be presented on a net basis. Advisors need to be keenly aware of the Marketing Rule and take all steps necessary to not run afoul of the Marketing Rule as this appears to continue to be a point of emphasis for the SEC.