In November 2022, the SEC's new marketing rule took effect, bringing long-needed updates to advertising regulations for advisors.
This rule permits the use of promotional materials, including testimonials, endorsements, and third-party ratings, as long as firms provide essential disclosures to ensure clarity around any paid endorsements or conflicts of interest.
According to the SEC, Wahed Invest released multiple ads on its website, social media, and email channels that did not clarify that endorsements were provided by individuals who were not current clients and who were paid. These ads lacked essential context about potential conflicts of interest due to the endorsers’ relationships with Wahed.
One ad featured a prominent professional soccer player alongside the tagline, “Join the 300,000+ people investing with Wahed. [This professional soccer player] is investing, are you?” However, Wahed allegedly failed to disclose that the athlete was not an actual client and had received approximately $500,000 in stock from Wahed’s parent company for appearing in the ad. This stock grant, which effectively made the soccer player a part owner, introduced a significant conflict of interest that, according to the SEC, was not properly disclosed.
In another campaign, Wahed featured mixed martial arts fighters in ads with messaging like, “Step into the ring of financial success with Wahed in 2023.” These promotions similarly omitted disclosures that the athletes were not clients and were compensated for their appearances.
The SEC also noted that Wahed displayed hypothetical performance data on its website. The performance metrics, generated from backtesting specific indexes and strategies, did not represent actual portfolio returns. Under the marketing rule, advisors can only promote hypothetical performance data if they have procedures ensuring that the data is relevant to the financial goals and investment needs of their target audience—a standard the SEC alleges Wahed failed to meet.
This isn’t Wahed’s first encounter with the SEC. In 2022, the company was fined $300,000 for allegedly sharing misleading marketing content and not disclosing conflicts of interest related to an ETF it had launched. Wahed settled that case without admitting or denying the charges.
Recently, Wahed agreed to pay $250,000 to settle allegations of marketing rule violations. The SEC asserts that the firm used endorsements from athletes who were not clients and failed to ensure that its hypothetical performance data aligned with the specific financial objectives of the intended audience. Wahed settled the case without admitting or denying any misconduct and did not immediately respond to requests for comment. The firm, which offers Shariah-compliant investment options, is headquartered internationally, with its U.S. offices based in New York.
