The SEC is finally bringing its rules on advisor advertising into the 21st century.
In its first update in decades, the SEC will allow financial advisors to share client testimonials and endorsements. The new rules also account for how communications technology and investor expectations have evolved since the previous rule was passed nearly 60 years ago, says SEC chairman Jay Clayton in a statement.
“This comprehensive framework for regulating advisers’ marketing communications recognizes the increasing use of electronic media and mobile communications and will serve to improve the quality of information available to investors,” Clayton says.
The new rule appears to be in direct response to how financial advisors are currently using social media, says Robert Rabinowitz, an attorney focused on broker-dealers and investment advisors with law firm Becker & Poliakoff. The previous regulations — an advertising rule passed in 1961 and a cash solicitation rule from 1979 — didn’t reflect how modern advisors find new clients, he says.
“[The amendments] keep uniformity in terms of communications with clients on all these social media platforms, and also help the compliance people with a roadmap of what’s acceptable communication and what’s not,” Rabinowitz says.
By merging its rules on advertising and solicitations into a single, updated rule, the SEC also eliminates a distinction between the two, says Jennifer Klass, a partner and co-chair of North American financial regulation and enforcement at law firm Baker McKenzie. This could substantially reshape the advertising landscape for advisors, and firms must take a close look at certain practices, such as compensation for referrals, she says.
“For investment advisors, it’s a big deal because this marketing rule really affects how they acquire clients,” Klass says. “It goes to the very heart of what their business is.”
The SEC backed away from a proposal that would have required advisors to review and approve every piece of advertising content before publication, Klass says. This gives firms more flexibility with digital marketing, especially in regards to posting on social media.
Digital marketing and communications professionals celebrated the new rules for creating opportunities for advisors to promote their personal brands online and grow their business. Just as a person looking for pizza can search for a shop on Google and immediately see what other consumers say about the quality of the pie, investors will soon be able to do the same for financial advice, says Jud Mackrill, chief marketing officer for the Carson Group.
“The credibility that you build on [search and social media] is going to be really important for visibility in the long run,” he adds. “Advisors need to get their act together with their overall digital presence.”
For Robert Sofia, CEO of advisor digital marketing firm Snappy Kraken, testimonials can be game-changing for how advisors convert prospects into clients.
“The most important question people are trying to answer before choosing an advisor is: Can I trust this person to help me reach my goals?” Sofia said in an email. “Testimonials are a tried-and-true form of social proof that builds trust and credibility with prospects.”
Samuel Brownell, an advisor with Stratus Wealth Advisors, calls the SEC amendments a “welcome change.” Permitting testimonials will let the firm develop case studies to help prospects understand the firm’s value, services and succession planning, he says.
But testimonials aren’t a silver bullet to drive growth, Brownell says.
“The testimonials will be one tool we will use to help connect with prospects, but ultimately, the most important aspects of business development, such as high quality advice and relationship building, will continue to be vital to successful advisory firms,” he says.
The SEC is giving firms 18 months to comply with the new rules, which also require firms to standardize how they report performance, in an effort to help investors better compare and evaluate their options. To prepare, firms need to examine their processes for reviewing and approving ads, ensure they have the required disclosures, and review their current referral fee arrangements.
