Beginning May 4, the Securities and Exchange Commission allows financial advisors to proactively use client testimonials, and non-client endorsements, as well as the capability to display third-party review site ratings of their respective businesses. This demonstrates the new ways prospective clients can use technology to learn more information about advisors.
The rule has tailored requirements for certain types of advertisements and performance presentations, and the use of testimonials and endorsements come with certain conditions, too. Below are three ways advisors can successfully use this information to stand out from the crowd and remain compliant with the SEC’s ground-breaking decision.
1. Exhibit caution of the New Ad Rule’s Significant Regulatory Red Flags and Pitfalls
The SEC has seven general rules that are important for advisors to review and implement. These specifically include:
- Being misleading by including untrue statements or omitting facts when making the statement
- Including facts the advisor doesn’t believe he or she can substantiate when the SEC demands it
- Including information that may cause a misleading implication or inference related to the advisor
- Not presenting a fair and balanced treatment of material risks or limitations regarding an advisor’s services or operation methods when discussing potential benefits
- Not presenting investment advice in a fair and balanced manner
- Presenting performance results that aren’t fair and balanced by including or excluding data or selecting certain time periods
- Being otherwise misleading
2. Review Best Marketing Practices
Before the rule, many financial advisors leveraged their digital assets for their clients, posting information about hosted events or other networking opportunities, or thought leadership and other content marketing to attract potential clients. Those activities will no longer be considered advertisements unless the content or discussion offers the advisor’s services with regard to securities, according to Kitces.com.
Whether advisors receive leads directly or via advertising channels, they need a solid method to retain said information and a follow-up plan. When prospects provide their data via a lead form or through an advisor’s web site, it’s critical the advisor has an intuitive CRM to organize client details, to better track and manage leads, and ultimately close deals faster. A strong CRM tool will provide advisors insights on which leads to follow up with, and schedule reminders and appointments, among other tasks.
3. How to Use Testimonials and Endorsements
The SEC has five required disclosures for advisors to follow if they want to use testimonials and endorsements. Advisors need to disclose “clearly and prominently:”
- If the person providing the testimonial is a current client, or the endorsement comes from a person who is not a current client;
- Whether the person received any incentives for the endorsement; and
- A statement of any conflict of interest on the part of the promoter regarding the relationship with the advisor
If the promoter received compensation, advisors must disclose details about the material terms of the payment, including the type of compensation, and if it was directly or indirectly paid, and advisors must describe the material conflicts of interest.
If advisors seek to solicit testimonials from clients, the SEC requires they source these from a wide assortment of people, not just a select few. Technology can help here, as advisors can use their client portals to make requests and quickly reach all of their clients.
Of course strong client engagement is important for advisors who are seeking feedback for testimonials. Dion R. Padilla, founder of San Antonio-based Padilla Wealth Management, learned having a strong technology stack where he could incorporate different third-party software into one cohesive wealth platform enhanced his experience, judging by the feedback he’s received. “Clients love it! They enjoy the anytime access to our branded portal through the mobile app and the dynamic reporting capability,” Padilla says.
Diversified Trust, a comprehensive wealth management firm based in the Southeastern U.S., says their client portal is a holistic, flexible and customizable reporting solution for clients, giving them a complete picture of their wealth, which enhances their experience. It also streamlines operations for staff.
Doug Turner, principal and director of operations for Diversified Trust, says when the firm sought out a technology provider they sought a platform with many custodial interfaces, but that a seamless advisor/investor experience “served as the real deal-clincher.”
Jeremy Sorenson, cofounder of Aspen Private Advisors, in Sioux Falls, South Dakota, says having a strong technology offering for clients to access their portfolios sets them apart. “In this era of higher competition from digital players, our online presence is extremely important and the Client Experience portal truly delivers a compelling digital hub that keeps us on the cutting edge,” Sorenson says.
The SEC new rule modernizes how advisors can use advertising to market themselves, and having a strong technology partner can make it easier for advisors to reach new clients and strengthen the relationship with current clients.
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