Why (and how) advisors should embrace client testimonials

Online reviews have become so prevalent that they seem like just another step in completing a transactional purchase, whether it's buying a car, visiting a new restaurant or watching a recently released movie. And these reviews can be powerful: In a survey by trend-tracker Exploding Topics, 93% of consumer respondents said online reviews impact their buying decisions. 

In the advisory community, the ability to solicit, produce and feature client testimonials is still relatively new, given the SEC's 2021 updated marketing rulings. In essence, the rule states that advisors must disclose if a client has been compensated with cash, fee discounts or other non-cash compensation in exchange for providing a testimonial or endorsement. Advisors are also generally not permitted to selectively publish or delete testimonials, meaning they can't cherry-pick their favorites. Nor can advisors help create or dictate the content of a testimonial — in other words, an advisor can't explicitly ask a client to leave a five-star review.

Yet despite this qualified green light from the SEC, RIA firms that I approached have been hesitant to proceed with client testimonials due to lack of education and fear of running afoul of regulators. This hesitance will prove an increasing barrier to practice growth in the coming years. After all, if consumers today rely on online input to make decisions as innocuous as where to get dinner, imagine the importance such feedback will play in determining which financial advisor they should work with soon and in the coming years.

Below, I'll explore top advisor concerns about soliciting testimonials and offer some solutions. 

READ MORE: Advisor's guide to new SEC rules for client testimonials

Pestering high-value clients

Asking clients — especially multimillion-dollar ones — to leave a review about your services may feel a little uncomfortable, even tacky. This is a common concern for advisors, particularly those who work with ultrahigh net worth investors. 

However, I've found that there are a few effective ways to get around this challenge. 

First, consider reframing the request. Instead of asking for a review, ask for feedback on the client experience so far. Explain briefly how their feedback will help you better address their needs and reassure them that their opinions and concerns are important to you. 

In addition, try to make the process as easy and fast as possible, so you're not requesting too much time out of their day. One option is to have an investor experience platform like ours, or another third-party, compliance-friendly survey service, send the client a few focused questions, ask for a rating on each and collect the information needed quickly. This has the added advantage of adding a buffer between you and the client, thus taking the focus off of you. 

Fear of negative reviews

In my work, I have overwhelmingly found that people who take the time to leave reviews do so because they're happy with the relationship. Yes, it's always possible that a client will leave a negative review — and that fact alone turns advisors away from testimonials altogether.

But if that does happen, reframing a negative review as crucial client feedback can make it one of the most valuable points of data an advisor will collect. 

Feedback from current clients provides opportunities for advisors to level up their practices and client experience. Less-than-perfect reviews can also make advisor testimonials appear more credible and authentic. Think about it — most star ratings online aren't perfect, and if they are, it's often cause for suspicion.

Compliance tripwires

Perhaps the biggest anxiety for advisors when it comes to testimonials is understanding what compliance, whether it be SEC or state regulators, does and does not allow. Working with a third-party platform or service that understands and addresses compliance requirements can help resolve this issue. 

READ MORE: SEC hits 9 firms for violations of marketing rule

It's also important to consult with your compliance team before proceeding. Depending on the size of your firm and compliance team, they may have already established internal guidelines based on SEC or state regulations. These guidelines can serve as a valuable resource to ensure your use of testimonials in marketing materials remains compliant. Your chief compliance officer can help you navigate the latest rulings and establish compliance-friendly recordkeeping procedures and disclosures. 

Investors want to make an informed decision before choosing to work with an advisor, and they put an incredible amount of trust in social proof. I believe that in the coming years, showcasing clients' satisfaction through reviews and testimonials will not only become an increasingly important differentiator for advisors, but it will also help prospects better envision themselves as future clients.