Unauthorized Marketing Claims, Weak Records, and a Missing Annual Review: A Case Study in Fundamental Compliance Failures

In its September 2025 order, the Securities and Exchange Commission found that a registered investment adviser violated the Marketing Rule, recordkeeping requirements, and the annual compliance review obligation under Rule 206(4)-7. The adviser made a prominent claim on its website that it “refuse[d] all conflicts of interest,” while its own compliance manual acknowledged that “conflicts of interest are inherent in the role as an investment adviser.” The SEC concluded that the firm “lacked a reasonable basis to believe that it would be able to substantiate the material statement of fact … that it ‘refuse[d] all conflicts of interest.’”

The firm also failed to maintain required advertisement records under Rule 204-2(a)(11). Despite relying on a third-party website vendor, neither the adviser nor its vendor retained copies of the website advertisements that appeared online. The SEC noted that advisers remain responsible for ensuring record retention even when functions are outsourced.

Further, the firm did not perform the required annual review of its compliance policies and procedures. The 2023 review was described by the SEC as “incomplete and limited to a cursory review of Form ADV,” lacking any testing or evaluation of the adequacy and implementation of policies. The order found willful violations of Sections 204(a) and 206(4) of the Advisers Act and Rules 204-2(a)(11), 206(4)-1(a), and 206(4)-7. The settlement included a cease-and-desist order, censure, and a $75,000 civil penalty.

Key Lessons for Compliance Leaders

This case reinforces that compliance documentation, marketing controls, and annual testing cannot exist in isolation. Claims made in advertisements must reflect the firm’s actual practices, and recordkeeping responsibilities do not end with a vendor engagement. Likewise, the annual review should be a substantive assessment of the compliance program, not a perfunctory checklist.

Tests to Strengthen Oversight

Marketing Claim Substantiation: For each public statement or marketing claim, verify contemporaneous documentation that supports it. Maintain substantiation files that include data, calculations, or rationale used.

Advertisement Archive: Confirm that all advertisements, including website pages, social media posts, and revisions, are retained with metadata identifying the date, version, and approval.

Annual Review Testing: Ensure the annual review includes testing of major compliance areas, marketing, trading, billing, custody, cybersecurity, and vendor oversight and that findings are documented with remediation steps.

Vendor Oversight: Review contracts and certifications from marketing or IT vendors to confirm their recordkeeping obligations under Rule 204-2. Conduct periodic spot-checks to verify retention.

Disclosure Alignment: Compare marketing language, Form ADV, Form CRS, and internal policies for consistency regarding conflicts, fees, and services. Any contradictions should be corrected immediately and documented.

Maintaining clear, accurate records and a tested compliance framework is not merely a procedural requirement; it reflects the firm’s integrity and ability to meet its fiduciary duty. Firms that invest the time to verify claims, preserve evidence, and conduct meaningful annual reviews build both regulatory credibility and client trust.

Independent third-party compliance consultants can provide valuable support in identifying weaknesses before they escalate into regulatory findings. In particular, an external reviewer can test whether the firm’s marketing materials are properly substantiated, verify that website archives and advertising records meet the requirements of Rule 204-2, and assess whether the annual review process under Rule 206(4)-7 includes meaningful testing. Consultants can also evaluate vendor oversight procedures, ensuring that service providers responsible for digital platforms, data retention, or marketing functions are meeting their contractual and regulatory obligations. An objective assessment helps senior management and the CCO confirm that documentation and controls align with what the firm represents to clients and regulators.

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Coulter Strategic Services provides customized compliance and regulatory consulting designed to meet the specific needs of each investment advisory firm. Services are tailored to the firm’s structure, business model, and regulatory obligations to help maintain an effective and sustainable compliance program aligned with current expectations. Contact us today to discuss your firm’s compliance program needs. Learn more at https://www.coulterstrategicservices.com/

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