Solicitation: Referral Arrangements (SEC 206(4)-3)

To operationalize the solicitation: referral arrangements (sec 206(4)-3) requirement, treat any paid referral, testimonial, or endorsement as “marketing” and allow it only if you meet the Marketing Rule’s conditions and disclosures. Build an intake-and-approval workflow for referrers, require written agreements where needed, deliver required disclosures at the right time, and retain evidence. (17 CFR 275.206(4)-1)

Key takeaways:

• Paying for referrals triggers Marketing Rule testimonial/endorsement conditions and disclosures. (17 CFR 275.206(4)-1)
• Your control system must cover who can solicit, what they can say, how they are compensated, and what gets disclosed to prospects. (17 CFR 275.206(4)-1)
• Exams focus on whether your program is designed and actually operating, with records that tie each referral payment to required approvals and disclosures. (2025-exam-priorities)

“SEC 206(4)-3” is often referenced as the legacy cash solicitation rule, but operationally most advisers now manage referral arrangements under the SEC Marketing Rule’s testimonial and endorsement framework. The practical requirement is straightforward: you cannot include a testimonial or endorsement in an advertisement, and you cannot compensate someone for a testimonial or endorsement, unless you comply with the conditions and required disclosures in the Marketing Rule. (17 CFR 275.206(4)-1)

For a CCO or GRC lead, the fastest path to compliance is to treat referral programs like a controlled third-party channel: (1) identify all referral sources and compensation paths, (2) standardize contracting and disclosure delivery, (3) supervise communications, and (4) keep records that connect the dots from each solicitation to approvals, disclosures, and payments. The SEC’s examination program continues to prioritize adviser marketing practices, so your goal is not only to “be compliant,” but to be provably compliant with clean, retrievable evidence. (2025-exam-priorities)

This page focuses on implementation at requirement level: what triggers the rule, who must follow it, the operational steps to execute, and the artifacts exam teams routinely request.

Regulatory text

Regulatory requirement (excerpt): “An advertisement may not include any testimonial or endorsement, and an adviser may not provide compensation for a testimonial or endorsement, unless the adviser complies with the conditions and required disclosures in 17 CFR 275.206(4)-1(b).” (17 CFR 275.206(4)-1)

Operator interpretation: If you pay (cash or non-cash) for referrals or promotional statements about your advisory services, you must run that activity through a Marketing Rule control framework that ensures: (a) the content is permitted, (b) required disclosures are made, and (c) the relationship and compensation are governed and supervised. The safe operational stance is to assume a referral arrangement is covered until compliance documents why it is not. (17 CFR 275.206(4)-1)

Plain-English interpretation of the requirement

If a third party promotes your advisory business and you provide compensation connected to that promotion, the SEC views it as a testimonial/endorsement in an advertisement. You cannot “set it and forget it.” You need defined pre-approval, contracting, disclosure delivery, and recordkeeping so that each compensated referral is compliant by design. (17 CFR 275.206(4)-1)

What typically triggers this in practice

• A solicitor, promoter, or placement-style referrer paid per lead, per meeting, per funded account, or via revenue share.
• Non-cash compensation: fee discounts, free services, event sponsorships tied to promotion, marketing support tied to referrals.
• An affiliate/partner marketing your services and receiving anything of value in connection with that promotion.

If your firm has “referral fees” anywhere (AP/GL, expense reimbursements, marketing budgets, advisory fee sharing), treat it as in scope until you map it. (17 CFR 275.206(4)-1)

Who it applies to

Entity scope: SEC-registered investment advisers (and their supervised persons) that include testimonials/endorsements in advertisements or compensate anyone for them. (17 CFR 275.206(4)-1)

Operational context (where controls must exist):

• Marketing and business development workflows (campaigns, partner programs, events).
• Third-party onboarding (contracting, due diligence, approvals).
• Finance/AP processes (how referral compensation is calculated, approved, and paid).
• Supervision and books-and-records (what you retain to prove compliance).
• Training and surveillance for supervised persons engaging with referrers. (17 CFR 275.206(4)-1)

What you actually need to do (step-by-step)

1) Build a complete inventory of referral arrangements

Goal: No “shadow solicitors.”

• Pull payables and GL detail for marketing-related payments and anything labeled referral/introducer/consultant/placement.
• Ask business owners for informal arrangements (handshake deals, “we send them a gift card,” conference sponsors who send leads).
• Create a centralized register: referrer name, owners/affiliations, countries, compensation type, what they do/say, channels used, and internal sponsor.

Evidence to retain: referral arrangement register version history; finance extracts; sign-offs from business owners that inventories are complete.

2) Define what is allowed: a referral communications standard

Goal: Prevent impermissible statements before they reach prospects.

• Create a “referrer communications rulebook” that sets boundaries (e.g., no performance claims unless explicitly approved through your marketing review; no “guarantees”; no unapproved decks).
• Require use of approved scripts, email templates, landing pages, and pitch decks.
• Decide which channels are permitted (email, LinkedIn, webinars, in-person events) and which require heightened review.

Evidence to retain: approved templates; marketing review checklists; archived versions of referrer materials.

3) Implement a pre-approval workflow for every referrer (and every material change)

Goal: One door in, one door out.

• Intake form completed by the business sponsor and compliance-reviewed.
• Confirm the arrangement is categorized correctly (testimonial/endorsement with compensation) and routed to the Marketing Rule conditions/disclosures process. (17 CFR 275.206(4)-1)
• Require compliance approval before (a) the referrer starts, (b) any content goes live, and (c) any payment is made.

Practical control: “No approval, no pay” in AP. If AP cannot match a referral payment to an approved referrer ID and current agreement, it gets rejected.

Evidence to retain: workflow tickets; approvals; exception logs.

4) Contracting: written terms that support compliance

Goal: Put supervisory and disclosure obligations into the deal. Your agreement package should, at minimum, operationalize:

• What the referrer is allowed to do and not do (distribution rules, no unapproved statements).
• Compensation terms and how it is calculated.
• Compliance cooperation: providing copies of communications on request, attestations, and audit rights.
• Termination triggers for non-compliance.

Evidence to retain: executed agreements; redlines; approval memo; renewal/termination records.

5) Disclosure delivery: make it systematic and auditable

Goal: Required disclosures happen consistently, not “when someone remembers.” Because the rule excerpt points to conditions and required disclosures in 17 CFR 275.206(4)-1(b), treat disclosure delivery as a controlled process, not a marketing afterthought. (17 CFR 275.206(4)-1)

Operationalize with:

• A standard disclosure document or disclosure language embedded in the channel (email footer, landing page).
• A defined “delivery moment” (e.g., first contact, at introduction, before or at the time of solicitation activity, as your counsel advises).
• A mechanism to prove delivery (CRM task completion, email archive, click-through record, signed acknowledgment where used).

Evidence to retain: disclosure template; mapping of disclosure method by channel; CRM logs; message archives.

6) Supervise and monitor: sampling plus targeted reviews

Goal: Detect drift.

• Periodic sampling of referrer communications (emails, social posts, recorded webinars if applicable).
• Review referral lead logs against payments to confirm compensation aligns to the agreement and approved arrangement.
• Escalation playbook: what happens when you find a bad statement or missing disclosure.

Tie monitoring to exam risk: the SEC’s exam priorities include focus areas that cover marketing practices and compliance controls. (2025-exam-priorities)

Evidence to retain: monitoring plan; samples reviewed; findings; remediation tickets; disciplinary actions when needed.

7) Recordkeeping: make retrieval easy

Goal: Produce a clean exam package quickly. Create a “referral arrangement file” per referrer with:

• Agreement and any amendments
• Approved materials/scripts and versions
• Disclosure language and evidence of delivery
• Payment calculations and approvals
• Training and attestations (referrer and internal sponsor)
• Monitoring results and remediation

Daydream practical note: Many teams track this in spreadsheets and shared drives until an exam hits. Daydream can centralize the register, approvals, artifacts, and operating evidence so you can answer “show me” requests without rebuilding history from email.

Required evidence and artifacts to retain (minimum set)

Artifact	What it proves	Owner
Referral arrangement register	You know all referrers and how they’re paid	Compliance / Marketing Ops
Executed written agreement + amendments	Terms support supervision, disclosure, and compensation rules	Legal / Compliance
Approved communication templates/materials	Referrers used compliant language	Marketing / Compliance
Disclosure template + channel mapping	You designed a repeatable disclosure method	Compliance
Proof of disclosure delivery	Disclosures occurred for specific prospects	Marketing Ops / CRM admin
Payment support (calc + approval + invoice)	Payments are controlled and match approved arrangements	Finance/AP
Monitoring/testing results	Controls operate, not just exist	Compliance
Training/attestations	People understand the rules	Compliance / HR

Common exam/audit questions and hangups

Expect questions that test both design and operation:

• “List all third parties who referred clients in the period and show how they were compensated.”
• “Show the agreement, the approved script/materials, and the disclosure delivered to prospects.” (17 CFR 275.206(4)-1)
• “How do you prevent unapproved marketing statements by referrers?”
• “Show evidence that payments cannot be made without compliance approval.”
• “How do you monitor social media or off-platform communications?”
• “Who owns the program, and how is it supervised and tested?” (2025-exam-priorities)

Hangups that slow responses:

• Disclosures stored in marketing files, but no prospect-level proof of delivery.
• AP paid “consulting” invoices that are actually referral compensation.
• Multiple teams running partner programs with no central register.

Frequent implementation mistakes and how to avoid them

1. Treating referral fees as a finance-only issue.
   Fix: require compliance approval in the AP workflow and tie each payee to an approved referrer record.

2. No single source of truth for referrers and their materials.
   Fix: one register plus one repository, with version control and required fields.

3. Assuming “non-cash” benefits don’t count as compensation.
   Fix: treat anything of value tied to promotion as in scope until documented otherwise. (17 CFR 275.206(4)-1)

4. Disclosures exist, but delivery is not provable.
   Fix: select disclosure delivery mechanisms that generate logs (CRM tasks, email archives) and test retrieval.

5. Monitoring is informal.
   Fix: write a monitoring plan, run it on a schedule, and retain results and remediation evidence.

Enforcement context and risk implications

No public enforcement case sources were provided in the approved source catalog for this page, so this section is intentionally limited to exam risk. The SEC’s exam priorities signal ongoing scrutiny of marketing-related practices and associated compliance controls, which increases the likelihood that deficiencies in referral arrangements will be identified during routine exams. (2025-exam-priorities)

Practical 30/60/90-day execution plan

First 30 days (stabilize and stop gaps)

• Freeze new referral arrangements unless routed through compliance.
• Run finance extracts to identify all referral-like payments; build the initial referrer register.
• Implement AP gating: require a referrer ID and compliance approval evidence before payment.

Days 31–60 (standardize and document)

• Publish referrer communications standards and approved templates.
• Roll out a standard agreement addendum or template with compliance terms.
• Standardize disclosure language and define delivery methods by channel; configure CRM fields/tasks to capture delivery.

Days 61–90 (prove operation and get exam-ready)

• Run monitoring on a sample of referrers and campaigns; document findings and remediation.
• Complete training for internal sponsors and marketing staff; collect attestations.
• Build an exam-ready “referral program packet” with policies, register, sample files, and a retrieval guide.

Ongoing (operate and improve)

• Quarterly (or event-driven) refresh of the register, payments-to-referrals reconciliation, and monitoring.
• Annual program review aligned to your broader marketing review/testing plan. (2025-exam-priorities)

Frequently Asked Questions

Does the solicitation: referral arrangements (sec 206(4)-3) requirement still matter after the Marketing Rule updates?

Operationally, paid referrals are addressed through the testimonial/endorsement and compensation conditions and disclosures in the Marketing Rule. The key requirement to implement is compliance with 17 CFR 275.206(4)-1(b) when testimonials/endorsements and compensation are involved. (17 CFR 275.206(4)-1)

What counts as “compensation” for a referral?

The regulatory excerpt covers compensation for testimonials or endorsements and ties permissibility to Marketing Rule conditions and disclosures. Treat cash and non-cash benefits connected to promotion as compensation unless you document a clear basis to treat it differently under your program. (17 CFR 275.206(4)-1)

Do we need a written agreement with every referrer?

The excerpt requires compliance with the conditions and disclosures in 17 CFR 275.206(4)-1(b). Many firms operationalize those conditions through written agreements because they provide supervisory hooks and auditability, but confirm your specific terms with counsel under the Marketing Rule framework. (17 CFR 275.206(4)-1)

How do we prove disclosures were delivered to prospects?

Pick disclosure delivery mechanisms that create durable logs: CRM tasks linked to the prospect record, archived emails with the disclosure language, or stored landing pages with dated versions. Then test retrieval by pulling a sample prospect file end-to-end.

What’s the fastest control to reduce risk this week?

Add an AP control that blocks referral-related payments unless the payee matches an approved referrer record and the request includes compliance approval evidence. That single gate prevents “shadow” arrangements from continuing unnoticed.

How should we handle affiliates or business partners that post about us on social media?

Treat posts that promote your advisory services as marketing content that may function as an endorsement, especially if there is compensation or an incentive tied to the activity. Route the relationship and planned content through the same intake, approval, disclosure, and monitoring workflow. (17 CFR 275.206(4)-1)