When I first came into the financial planning world, back in the early 1980s, the biggest thing that confused me about the profession was the SEC’s weird prohibition of testimonials for all SEC-registered RIAs. Wouldn’t (I asked myself and others over drinks at conferences) the world be a better place if clients could testify to the benefits they’d received from their planning relationship? (The answer was always ‘yes.’)
What made it worse was that there was no such prohibition in the brokerage world. Brokers could use customer testimonials all they wanted—and some did, although wirehouse compliance departments eventually became uneasy with the practice. Still, it seemed to be a very unfair regulatory discrepancy, steeply tilting the competitive playing field in favor of those who had no statutory or regulatory requirement to put clients’ interests first.
Apparently that is about to be rectified—sort of. You may have read that the SEC has approved changes to the advertising rules for advisors, which was apparently triggered by the fact that it is now pretty much impossible for advisors to control what people say about them on social media—good, bad or indifferent, although the SEC was apparently most worried about the ‘good.’ (Does that, in itself, make any sense?) Bringing enforcement action against advisors whose clients rave about them on Facebook does, actually, seem to be a poor use of resources that could be put toward actually catching Ponzi schemers and brokers who win annuities sales contests.
Under the new rule, you are “advertising” if you offer your advisory services to prospective clients or offer new services to existing clients, though apparently there is an exception for one-on-one phone or email communications. You’re not allowed to make false or misleading statements, or omit material facts when you offer these communications—which I think is pretty uncontroversial.
But getting to the testimonial part of the rule, you can now have clients recommend your services on your website or in messages, so long as you disclose that the person providing the testimonial is an actual client. If you’re paying somebody to give the testimonial (would you do that?), then you will need to disclose that as well.
All of this will go into effect in mid-2022 at the earliest, so there’s no reason to get excited now. But at that point, advisors will be able to do what I believe is the most effective marketing outreach: have clients tell their stories. In the past, I recommended that advisors tell client stories that have a happy outcome: you give some background information on the type of client, and the challenge that client faced, and then tell or write about the journey, after you started working together, and the solution to the problem—noting, of course, that you and the client are still working together.
Today, you have to redact the clients’ names whenever you do that. In the future, you might start contacting clients who wouldn’t mind if you used their names in the story, and (most importantly) who wouldn’t mind being contacted occasionally by prospective clients who want to know if the story is true, and whether they would recommend working with you. It would supercharge the whole referral process, which today is kind of hit-or-miss.
Is there any downside to this new rule? I suspect that some very aggressive advisory firms—who, I would guess, take a sales approach—will flood social media with glowing testimonials which might tend to exaggerate their credentials or the value of their services. The SEC may find itself overwhelmed chasing down bogus claims of happy client outcomes, although if it did put some energy into that kind of investigation, the regulators might uncover firms that are committing other abuses.
As always, it will be up to consumers to distinguish between people who are accurately describing their client outcomes, and whose clients genuinely appreciate of their services, from the sales hype and exaggerations. Meanwhile, although it’s half a century late, I’m glad that the SEC has rectified one of the biggest, strangest flaws in its regulatory scheme. And I encourage you to look into how you can use the new rules to your marketing advantage.