SEC Marketing Rule: Referrals and Endorsements

The SEC Marketing Rule, Rule 206(4)-1, is the single rule that now governs how an RIA advertises, uses testimonials, and handles referrals. This guide covers what the rule is and how it works, with particular depth on the question firms get wrong most often: when a financial advisor referral becomes a regulated endorsement.

What is the SEC Marketing Rule?

The SEC Marketing Rule is Rule 206(4)-1 under the Investment Advisers Act of 1940, adopted in December 2020 and mandatory for SEC-registered advisers since November 4, 2022. It defines what counts as an advertisement and sets the conditions for using testimonials, endorsements, third-party ratings, and performance results in one.

• A two-prong definition of advertisement. Prong one covers communications offering advisory services to prospects, with carve-outs for one-on-one and extemporaneous live oral communications. Prong two covers any compensated testimonial or endorsement.
• Conditions for testimonials and endorsements, which is where all referral activity now lives: disclosure, oversight, written agreements above a threshold, and disqualification of certain promoters.
• Rules for performance advertising: net-of-fee presentation alongside gross, prescribed time periods, and tight conditions on hypothetical and predecessor performance.
• Third-party ratings, permitted with disclosures about who produced the rating and whether anyone paid for it.
• Seven general prohibitions, including untrue statements, unsubstantiated material claims, and anything otherwise materially misleading.
• Recordkeeping and Form ADV changes that travel with the rule: amended Rule 204-2 records obligations and new marketing questions in Part 1A.

Most of those provisions are well understood. The part that still generates deficiency letters, and the part this guide goes deep on, is what the rule did to referrals, because it made every referral a testimonial or an endorsement by definition.

The referral conversation that used to be simple

For most of the last four decades, an RIA thinking about referral fees looked at one rule and an adviser thinking about a website testimonial looked at another. Referrals lived under the Cash Solicitation Rule, Rule 206(4)-3, adopted in 1979. Advertising lived under the original version of Rule 206(4)-1, adopted in 1961.

On December 22, 2020, the SEC adopted amendments that create a single rule, the marketing rule, replacing both the advertising rule and the cash solicitation rule. The rule became effective May 4, 2021, with a compliance date of November 4, 2022.

That merge is the whole story. Referral activity did not get its own chapter in the new rule. It got absorbed into two words you now have to think about every time somebody sends you business: testimonial and endorsement.

What counts as a testimonial and what counts as an endorsement?

The difference comes down to one thing: whether the person speaking is currently your client.

A testimonial is a statement by a current client or private fund investor that describes their experience with the adviser or its supervised persons, directly or indirectly solicits someone to become a client, or refers a current or prospective client to the adviser.

An endorsement is a statement by anyone who is not a current client or investor that indicates approval, support, or recommendation of the adviser, describes that person's experience with the adviser, solicits a client or investor, or refers a current or prospective client to the adviser.

Read those definitions again and notice the word refers. It sits right there in the text of both. A referral is not adjacent to a testimonial or an endorsement. A referral is one, by definition, the second it happens.

The rule also gave the industry a new job title. The SEC uses the term "promoter" for any person providing a testimonial or endorsement, whether compensated or uncompensated. The people who used to be called solicitors are now promoters. So the CPA who sends you two clients a year, the client who introduces you at a dinner party, and the podcast host you sponsor are all sitting in the same bucket now.

So when does a referral actually become a regulated advertisement?

Being a testimonial or an endorsement is not the same as being an advertisement. This is the distinction that trips up otherwise careful firms.

The Marketing Rule's definition of advertisement has two parts. The first part covers any direct or indirect communication an adviser makes that offers its advisory services to prospective clients or investors, or offers new services to current ones. That first part excludes one-on-one communications and excludes extemporaneous, live, oral communications. The second part covers any endorsement or testimonial for which an adviser provides cash or non-cash compensation, directly or indirectly.

Run any referral through four questions and you will land in the right place.

Question 1: Who is talking?

Current client means testimonial. Anyone else means endorsement. The compliance obligations are nearly identical, but your disclosure has to say which one it is, so you need to know.

Question 2: Did they describe, solicit, or refer?

Any of the three qualifies. A CPA saying "you should call these people" is an endorsement even if he never says a word about performance, service, or his own experience.

Question 3: Did you provide compensation, directly or indirectly?

This is the switch. Compensate a referral and it becomes an advertisement under the second prong, full stop, regardless of whether the communication went to one person or a thousand, and regardless of the medium. The one-on-one carve-out does not save you here. It only applies to the first prong.

And compensation is broader than most firms assume. It includes cash and non-cash compensation paid directly or indirectly, such as directed brokerage, awards or other prizes, gifts and entertainment, and reduced advisory fees. The SEC's view turns on whether the thing provided is a quid pro quo for the testimonial or endorsement, and the Commission declined to offer a bright-line test. Fee waivers, sales awards, outings, and tours all appear on the SEC's list.

One useful data point on the other side of the line: attendance at training and education meetings, including company-sponsored events like annual conferences, is not treated as compensation if it is not provided in exchange for the endorsement or testimonial.

Question 4: If you paid nothing, did you touch it?

Uncompensated referrals and reviews can still become your advertisement under the first prong if you get involved. Uncompensated testimonials or endorsements become advertisements where the adviser adopts the communication or becomes entangled with it. Entanglement means the adviser involved itself in preparing the third-party content. Suppressing or editing negative social media comments, or promoting the positive ones, is entanglement.

Which means the Google review you did nothing to solicit is probably not your problem, right up until somebody on the marketing team screenshots it for LinkedIn.

Common scenarios, sorted

• A client mentions you to a neighbor, unprompted, with no reward, and you never hear about it. Testimonial by definition. Not an advertisement, because it was uncompensated and you did not adopt it. Nothing is owed.
• A client leaves an unsolicited Google review and you leave it alone. Testimonial. Generally not an advertisement. Nothing is owed, but do not start editing or curating the review set.
• Your firm reposts that same review on LinkedIn. Testimonial. Now an advertisement under the first prong, by adoption. Full disclosures apply.
• You run a refer-a-friend program paying a $100 gift card. Compensated testimonial. Advertisement under the second prong. Disclosures, oversight, and records apply. A written agreement is not required at that dollar level.
• A CPA receives a share of your advisory fee for introductions. Compensated endorsement. Advertisement. Disclosures including material compensation terms and conflicts, a written agreement, and an ineligible-person check.
• You and an estate attorney agree to send each other business. Endorsement, indirectly compensated. Advertisement. Same obligations as above, and the reciprocity itself is the conflict you have to describe.
• A paid lead generation or matching network sends you prospects. Compensated endorsement. Advertisement. Full set of conditions. These services typically meet the definition of endorsement because they solicit, refer, or otherwise promote the adviser's services.
• You buy a list of names and nothing more. Neither. Not an advertisement. Selling a list of prospective investors does not by itself meet the definition, because the seller is not indicating approval or describing an experience.
• A client's advisory fee is discounted because she brings in referrals. Compensated testimonial, with the discount as non-cash value. Advertisement. Full set, and the reduced fee is the compensation you have to disclose.

What changes the moment it becomes an advertisement

The rule permits testimonials and endorsements in advertisements if the adviser satisfies disclosure, oversight, and disqualification provisions. Here is what that means in practice.

Clear and prominent disclosure, in the advertisement itself

Advertisements must clearly and prominently disclose whether the promoter is a client and whether the promoter is compensated. Additional disclosures are required regarding compensation and conflicts of interest. The clear and prominent items are the client status, the fact that cash or non-cash compensation was provided, and a brief statement of material conflicts. The material terms of the compensation arrangement and a fuller description of conflicts also have to be provided, though not necessarily with the same prominence.

A written agreement, above a threshold

An adviser must enter into a written agreement with promoters, except where the promoter is an affiliate of the adviser or the promoter receives de minimis compensation, meaning $1,000 or less, or the equivalent value in non-cash compensation, during the preceding twelve months.

Watch that trailing twelve months. A $250 gift card is de minimis. Four of them to the same person inside a year is not, and the agreement obligation arrives without an alert.

Oversight

An adviser using testimonials or endorsements must oversee compliance with the marketing rule. You need a reasonable basis for believing each one met the conditions, and you need that basis to exist as something other than a memory.

Ineligible persons

The rule prohibits certain bad actors from acting as promoters for compensation, subject to exceptions where other disqualification provisions apply. This one only bites on compensated arrangements, which is one more reason the compensation question matters so much.

One recent wrinkle. In January 2026, SEC staff updated the Marketing Compliance FAQs to address disqualification triggered by orders from self-regulatory organizations. The staff indicated it would not recommend enforcement action under Rule 206(4)-1(b)(3) in certain cases where a self-regulatory organization's final order is the sole reason a person is ineligible, subject to conditions set out in the FAQ. If a promoter's eligibility is a live question for you, read the current FAQ rather than relying on a summary.

Records

Amended Rule 204-2 requires advisers to make and keep copies of all advertisements they directly or indirectly disseminate, with specific requirements for records related to testimonials, endorsements, and third-party ratings. Alternative methods are available for oral advertisements, including oral testimonials and endorsements.

Form ADV

The SEC amended Form ADV to require additional information about marketing practices. Your Part 1A answers and your actual referral practices should tell the same story.

One scope note before you act on any of this. The marketing rule applies to advisers registered or required to be registered with the Commission. State-registered advisers follow their state regulator's rules, which often track the SEC framework but can add conditions. If you are dually registered, FINRA Rule 2210 is still in the room.

The real failure point is documentation, not policy

Most firms we talk with can describe the rule correctly. The gap shows up nine months later, when an examiner asks about a specific introduction from a specific quarter.

Think about what a compliant compensated referral actually requires you to have preserved. Who the promoter was. Whether they were a client at the time. What you gave them, and when, and what the running twelve-month total is. Whether a written agreement was required and executed. What disclosure was delivered, in what form, at what moment. Some evidence that you checked eligibility. A copy of the communication itself. If you are building this out from scratch, our guide on how RIAs track and measure referral activity covers the tracking side in more depth.

Almost all of that gets created inside a conversation. A client says "I told my brother-in-law to call you" in the last two minutes of a review meeting. A COI mentions over coffee that he sent someone your way last month. Those moments are the record. If they only ever live in someone's head, or in a note that never made it out of a legal pad, you do not have a documentation problem in six months. You have one right now.

This is where the platform earns its keep. When a referral comes up in a client meeting, note taking captures it as it is said, finding the referral surfaces it rather than leaving it buried in the transcript, and the meeting debrief writes it to the client record with the timestamp attached. The trail stays where an examiner can find it instead of evaporating.

Referrals mentioned in a client meeting should not depend on somebody remembering to write them down. See how it works.

To be clear about what software does and does not do here. No tool makes a referral program compliant. Your CCO and your counsel do that. What good tooling does is remove the excuse that the evidence was never captured, which is the failure mode that actually shows up in deficiency letters. If you are comparing options, we looked at the landscape in our roundup of software for RIA client referrals.

Frequently asked questions

What does the SEC Marketing Rule cover?

Everything an RIA does to market itself: the definition of advertisement, testimonials and endorsements (which now include all referrals), third-party ratings, performance advertising, seven general prohibitions, and the related recordkeeping and Form ADV requirements.

When did the SEC Marketing Rule take effect?

The rule became effective May 4, 2021, and compliance became mandatory for SEC-registered advisers on November 4, 2022. State-registered advisers follow their state's rules, which often track the SEC framework.

Is a client referral an advertisement under the SEC Marketing Rule?

Only if you compensated it, or if you republished it. An unprompted, unrewarded, one-on-one referral from a client is a testimonial by definition but generally not an advertisement. Add a gift card, or repost the mention, and it becomes one.

Can RIAs pay for referrals?

Yes. The Marketing Rule permits compensated testimonials and endorsements, which is what paid referrals now are. You have to satisfy the disclosure, oversight, written agreement, and disqualification conditions in Rule 206(4)-1(b).

Does a $50 gift card count as compensation?

Yes. Non-cash compensation counts, including gifts, prizes, entertainment, and reduced advisory fees. It sits below the $1,000 de minimis threshold for the written agreement requirement, but the disclosure, oversight, and recordkeeping obligations still apply.

What is the $1,000 de minimis exception?

A written agreement with a promoter is not required if that promoter received $1,000 or less, or equivalent non-cash value, during the preceding twelve months. The threshold is a rolling total per promoter, so track it rather than assuming.

What is the difference between a testimonial and an endorsement?

Who is speaking. A current client or private fund investor gives a testimonial. Anyone else gives an endorsement. The conditions are largely the same, but your disclosure must state which applies.

Are reciprocal referral arrangements allowed?

Generally yes, with disclosure. Sending business to someone who sends business to you is indirect compensation, so the arrangement is a compensated endorsement and the reciprocity itself is a material conflict you have to describe.

Do I have to disclose an unpaid referral?

If it never becomes an advertisement, no. If you adopt it by publishing it, the disclosure obligations attach, including stating whether the person was a client and that no compensation was paid.

What records do I need to keep for referrals?

Copies of the advertisement, the written agreement where required, evidence of the disclosures delivered, documentation supporting your reasonable basis for believing the conditions were met, and the compensation paid to each promoter.

Where to go next

If you are designing or repairing a financial advisor referral program, the two starting points are your compensation inventory and your capture process. List everything of value that currently flows to anyone who sends you business, including the things nobody thinks of as compensation. Then work out where each of those moments gets recorded. Our guide to building a financial advisor referral program covers the program design end to end, and our walkthrough on offering a second opinion review shows what that looks like inside a live client conversation.

Want to see the capture side working on your own book? Book a demo and bring one real referral from last quarter. We will walk the workflow with your example.