By John Drachman
In a historic nod to the Amazonization of Everything, the SEC finalized a Christmas-time regulatory framework that allows financial advisors to advertise their services through testimonials and endorsements for the first time.
The move is not a minute too soon: As AI, machine learning and social media came to dominate all human communications – including advertising – the SEC had been holding fast to 60-year-old protocol established two years before the invention of the first computer. Replacing its blanket approach to ad rules with what the SEC terms “principles-based provisions,” the agency hopes to better accommodate “the continual evolution and interplay of technology and advice.”
“For investment advisors, it’s a big deal because this marketing rule really affects how they acquire clients,” said Jennifer Klass, a law partner at Baker McKenzie Klass. “It goes to the very heart of what their business is.” Top takeaways from the developing stories surrounding the final SEC rule include:
- SEC to boost advisor marketing presence: SEC Chairman Jay Clayton said the framework for regulating advisors’ marketing communications “will help improve the quality of information available to investors.”
- Agency to offer consultative help: The SEC doesn’t expect advisors to go back to school to grasp the new framework, promising that “Consultation with the Commission’s expert staff will be made available.”
- Testimonials and endorsements help educate investors: Subject to certain conditions, the use of testimonials and endorsements by financial professionals is certain to expand the breadth and depth of their engagement with those investors who are looking for advice. For advisors who want to get this right, the key to success begins in clearly distinguishing between paid and unpaid testimonials and endorsements.
- Performance ad disclosure however is still hefty: According to the SEC, the rule will require advisors to standardize certain parts of a performance presentation “in order to help investors evaluate and compare investment opportunities.” A lengthy list of prohibited items includes “gross performance, unless the advertisement also presents net performance; any performance results, unless they are provided for specific time periods” and much more. Advertisements that include third-party ratings will also be required to include specific disclosures to prevent them from being misleading.
The new rules create multiple opportunities for advisors to promote their personal brands online and grow their businesses. Just as a person shopping for a bicycle can immediately see what other consumers are saying, soon investors will be able to do the same in their search for the Perfect Financial Advisor.
Jud Mackrill of the Carson Group added, “The credibility that advisors build on social media is going to be really important for visibility in the long run.” For investors whose most important question often is: “Can I trust this person to help me reach my goals?” the addition of authentic testimonials and endorsements elevates relationship-building to a higher level of trust and credibility that, according to the SEC, is in the client’s best interest.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.
