When it comes to marketing, it’s going to be a brave new world for registered investment advisors.
The Securities and Exchange Commission last spring updated its 60-year old marketing rule, which determines how advisors can advertise, and RIAs have less than eight months to comply with the regulation, which runs over 400 pages and contains opportunities—and potential pitfalls—for the industry.
“Advisors are overwhelmed,” says Susan Theder, chief marketing and experience officer for FMG Suite, a marketing service for financial advisors. “Their ability to grow their business is going to be exponential, but there will also be risks involved and more work for them, in addition to a full plate of things they already have to do.”
The most significant change for advisory firms, who must be compliant by Nov. 4, is that they will now be able to use testimonials and reviews in their marketing.
“The ability to have clients talk about their experience is something we’ve wanted to do for a long time,” says Erik Strid, founding principal of Concentus Wealth Advisors, an RIA in suburban Philadelphia. “We’re trying to figure out how best to take advantage of that capability.”
Strid plans to take a low-key approach with Concentus clients. “We’ll start out with clients who have already indicated they’re comfortable talking about the firm,” he says. “After a review, we’ll ask them: ‘Before you leave today, would you be OK doing a testimonial for us? If you can great, if not, no big deal.’”
Bordeaux Wealth Advisors in Silicon Valley is also anxious to begin using testimonials. “It’s definitely a net positive that hasn’t been available to us in the past,” says Dave Murdock Jr., the firm’s chief compliance officer and managing partner.
But testimonials are uncharted territory, and firms are proceeding with caution. “There are parts of the rule that need clarification,” says Amy Ellisor, Bordeaux Wealth’s marketing director. “To date the SEC hasn’t released any no-action letters with rule interpretations.”
For example, the SEC has chosen not to adopt an internal preapproval requirement for marketing materials, Ellisor points out. As a result, “it’s unclear as to whether the existing marketing-review process for each firm will need to be adjusted,” she says.
The SEC is expected to issue more guidance on testimonials in the next six months, says Dan Bernstein, chief regulatory counsel for MarketCounsel, a New Jersey-based compliance firm working with RIAs. In the meantime, Bernstein says he’s telling clients: “I have no problem with you being first [to use testimonials], but play it more conservatively until we get more guidance.”
As the regulation currently stands, advisors who solicit and use testimonials and reviews must comply with a series of general prohibitions aimed at preventing misleading, fraudulent, or manipulative marketing practices.
The prohibitions, listed in an FAQ sheet for advisors released by FMG Suite and RIA Lawyers, include making untrue statements or omitting a material fact. The new rule also prohibits advisors from making statements that can’t be substantiated, including information likely to cause a misleading implication or inference, and directs advisors to offer “fair and balanced treatment of any material risks.”
For any endorsements or testimonials, advisors must disclose whether the person talking about the firm is a client, whether they received compensation, and if they were made aware of any conflicts of interest.
The new SEC marketing rule also opens the door for advisors to ask for and promote reviews of their service. Google My Business reviews will be the most anticipated—and potentially problematic.
“Firms are going to be able to put Google reviews on their website for the first time, and it will expand their ability to get referrals,” says FMG Suite’s Theder. “It’s also going to help their search engine optimization results and will have a similar impact to when advisors started using Facebook and LinkedIn, which really helped to build their brand.”
But not all reviews are going to be positive, experts warn. “You can’t take any action to take off a negative review,” Bernstein cautions. Instead, Theder recommends directly engaging with clients who post negative feedback.
“The best brands respond politely,” she explains. “They say: ‘We’re sorry we didn’t live up to your expectations. What can we do to serve you better?’ You want to turn a negative into a positive.”
What’s more, a negative review might include a complaint that could get reported to regulators, forcing an advisory firm to contact their legal and compliance department. And while reviews placed on marketing materials or a firm’s website don’t need to be approved by the SEC, FMG Suite and RIA Lawyers caution that advisors “can expect that [reviews] will be the subject of review during routine and focused examinations.”
Reviews are also going to be closely scrutinized by competitors, who “may be inclined to report instances of non-compliance to the SEC staff,” according to FMG Suite and RIA Lawyers.
“The new rule comes with a lot of complexity,” says industry consultant Suzanne Siracuse. “And while there are many benefits, advisors also need to pay close attention to what they can and can’t do.”
Advisors can mitigate the risks from negative reviews, according to Theder, by surveying clients to preemptively address any concerns and improve their “net promoter score,” a measure of client satisfaction. “You want to know what people are going to say about you before they say it, so you won’t be surprised,” she says.
Working closely with “good legal counsel is worth the cost” to get up to speed on the new marketing rules, says Bordeaux Wealth Advisors’ Murdock. “It’s a great opportunity, but the need for more disclosure will also increase.” Advisory firms shouldn’t read the 400 pages of SEC rules before they map out their new marketing strategy, says MarketCounsel attorney Bernstein. “Figure out what you would really like to say. Then check to see if it’s compliant and what disclosure is required.”