When the SEC Marketing Rule came along and allowed advisors to start asking for and advertising testimonials, it was very refreshing news. Very rarely do our industry regulators introduce a rule that permits advisors to do something new; usually new rules prohibit advisors from engaging in tasks they were previously allowed to do.
But although the SEC Marketing Rule has been in effect for more than three years, advisors still seem to be “afraid of it” when in reality they shouldn’t be.
I get why this is the case. It’s difficult for advisors, especially those who are fully independent, to sift through every rule and regulation that gets announced. They often assume they will do something wrong and get into trouble, so many have avoided the SEC Marketing Rule. After all, financial advisors did not get into the business to be compliance officers — they got into the business to help people.
The SEC Marketing Rule made changes to various components of marketing. In this article, I’ll focus on the changes related to testimonials. The advisors that take the time to understand the SEC Marketing Rule and learn how to implement it in their practice — particularly the testimonial aspect — will far outpace those that do not. One particular advisor in our group is doing just that. Over the past few months, this advisor and I have sat down together, reviewed the updates that came with the rule, and put together a system for testimonials that is simple, effective, and most importantly, compliant.
That is what I want to share here, but first some background information.
In 2021, the SEC announced it had finalized reforms under the Investment Advisers Act to modernize rules that govern investment adviser advertisements and payments to solicitors. The rule regulates the marketing communications of investment advisers. It replaced the Advertising Rule (1961) and the Cash Solicitation Rule (1979).
The rule addressed the following areas:
Changed the definition of what is considered an advertisement.
Revised current rules that govern payments to solicitors.
Allowed for testimonials in advertisements.
Provided additional standards around advertising of performance figures.
The rule became effective on May 4 2021 and advisers were given an 18-month transition period to comply. The final compliance date was November 4, 2022.
By providing clearer guidelines and enhancing disclosure requirements, the SEC sought to improve investor confidence and ensure greater transparency in the financial services industry.
What’s Different Now
Testimonials were prohibited prior to the 2021 implementation of the SEC Marketing Rule. Even if a client referred a new prospect to an advisor and gave a glowing recommendation, the advisor could not use that recommendation to showcase their talents in their marketing materials. The SEC Marketing Rule defines testimonials as any statement of a client’s experience with, or endorsement of, an investment adviser. This includes statements on social media, websites, or other public platforms.
Why It’s a Big Deal
Think about it this way: When you are hungry and look up places online to order food from, what do you usually look for? In my case, I look for the star-rated reviews of business on Google and how many reviews a business has attracted. Within the reviews themselves, I take the time to read what the customers had to say. More often than not, those reviews are what sell me on the place. Not so much the pictures of the food on the website, not the prices, but the experience of others who ate there.
Think about your advisory practice the same way. The main reason clients came to you was not because of the pictures on your website, or just because of your prices for services. They came to you because of the experience their friend, family member or coworker has had with you. The SEC Marketing Rule allows you to get your advocates to write down their experiences with your practice and then lets you advertise these experiences to the masses.
How to Personally Request Testimonials
Start asking for client testimonials from all of your clients. Make sure it is a scripted process that does not allow for favoritism. Be sure to invite all of your clients to participate, not just the ones you know will say something good.
The scripted process can be as simple as a link on your website or in your email signature saying, “If you would like to leave a review about the service you have received from my firm, please let us know!” You could also opt for a more direct approach by saying at the end of the meeting, “(Client name), we are always looking to evaluate how we are working with our clients. Could you please consider writing a brief testimonial describing your experience? This is not mandatory, and it is anonymous. We would appreciate any feedback you are willing to provide. Thank you!”
Engage Social Media, Too
Besides manually asking for testimonials and displaying them on your website, you should also create social media pages where people can write unsolicited reviews and rate your business. Some platforms for this include Google Business, Facebook, LinkedIn, Instagram, etc.
The key difference with allowing people to rate and review your business on social media is that you cannot filter out bad reviews. If you ask for a testimonial from a client, and they give you a bad one, you can choose not to advertise it. If someone leaves a review online, it stays there.
This can scare advisors away, but remember that no business is perfect. If anything, a poor review shows you are human. You won’t be able to make some clients happy and chances are these clients were never a great fit for your firm in the first place. If you do get a bad review on one of these sites, the key is to respond in a professional manner. In your reply comment, note that you are sorry they had a bad experience. Also ask how you can help make things better for them and what your firm can improve in general.
Must Do’s
In order to use testimonials, advisors must meet certain conditions. These include disclosing whether the person providing the testimonial is a client, the compensation (if any) received for providing the testimonial, and any material conflicts of interest.
The SEC Marketing Rule includes anti-fraud provisions to prevent misleading or deceptive testimonials. Investment advisers must ensure that testimonials are not false or misleading, and they must not cherry-pick favorable testimonials while omitting unfavorable ones.
Advisors are required to establish and implement policies and procedures to ensure compliance with the SEC Marketing Rule’s requirements regarding testimonials. This includes monitoring and reviewing testimonials to ensure they comply with the rule’s provisions.
In laymen’s terms, you can ask clients to provide testimonials. They just need to be accurate, they cannot be misleading, and you need to have a documented system in place to show regulators how you are in compliance with this rule.
Firms who’ve failed to adhere to the requirement set forth by the rule have faced penalties and fines.
Conclusion
The SEC Marketing Rule changes how financial advisors can market themselves, putting them more in line with other industries. Rather than shying away from it, take advantage of it! Creating a simple, repeatable process for soliciting testimonials, as well as up-to-date social media pages to allow for unsolicited testimonials, can be a big help. Although you may get some negative reviews here and there, as long as you are doing the right thing as an advisor, your clients will spread the word. And now you can help them spread the word.
The SEC Marketing rule is not something to be weary of, but something to be celebrated. You can find more information on the SEC’s s website, including these frequently asked questions and this compliance guide.
Colt Miles is the business development and supervisory principal at Athlon Advisors in Columbia, Md. He runs Athlon’s Office of Supervisory Jurisdiction and was formerly a financial advisor at the firm. Contact him at cmiles@athlonadvisors.comor 443-347-4830.
