In December 2020, the SEC made history by updating the Investment Advisers Act of 1940, adopting a modernized RIA marketing rule.

First, some background: The goal of the Investment Advisers Act was to protect investors by separating legitimate “investment counselors” from scam artists pushing flash-in-the-pan investment schemes. Part of upholding that commitment meant prohibiting any form of marketing or advertising collateral that could be misleading to the public, specifically about anticipated investment results and returns. 

In 1961, this evolved into a hard-and-fast rule forbidding RIAs from using client testimonials in any promotional materials, with the reasoning that RIAs couldn’t guarantee the same results or returns for future clients.

Fast forward to 2021. Social proof and digital testimonials have been driving new business across every imaginable industry except financial services—until now.

With the introduction of the SEC’s new marketing rule, financial advisors can now leverage testimonials, endorsements and third-party ratings in their marketing and advertising campaigns. 

Let’s take a closer look at what that actually means.

What Happened:

The SEC replaced its former advertising and cash solicitation rules with a new Investment Adviser Marketing Rule, effective May 4, 2021. Advisors have until November 4, 2022 to become compliant with the new rule.

Who Does it Affect:

It’s important to understand that the new marketing rule is technically applicable only to SEC-registered RIAs. RIAs registered at the state level, as well as FINRA-registered brokers, will still need to adhere to their own set of rules, put in place by the state or FINRA, respectively. 

What Do RIAs Need to Know:

The SEC relaxed its marketing and advertising restrictions for RIAs, which shouldn’t be confused with eliminating them entirely. RIAs still need to maintain compliance within their marketing materials, which can now include:

  • Client testimonials
  • Endorsements from non-clients
  • Ratings from third-party sites, such as Google and Yelp

Below, you’ll find tips for navigating the new regulations that will help you drive new business and stay on the right side of compliance.

Do not include:

    1. Any untrue statement of material fact (including omitting relevant information)
    2. Material statement of fact unable to be substantiated should the SEC require it
    3. Information that could reasonably cause an untrue or misleading implication to be drawn 
    4. Potential benefits of service or operational methods without fair and balanced treatments of potential risks and limitations
    5. A reference to specific investment advice that is not fair and balanced
    6. Performance results or performance time periods in a manner that is not fair and balanced
    7. Any information that could be materially misleading

Display the following disclosures, clearly and prominently, along with testimonials and/or endorsements: 

    1. Whether the testimonial is from a current or former client
    2. Whether the testimonial or endorsement was compensated (including cash or non-cash compensation)
    3. Any material conflicts of interest on the part of the promoter (the person giving the endorsement or testimonial) resulting from the promoter’s relationship with the adviser
    4. The material terms of any compensation to be provided to the promoter
    5. Any material conflicts of interest on the part of the promoter resulting from a compensation arrangement

Following the aforementioned SEC guidelines, consider using testimonials, endorsements and third-party ratings:
    1. On social media. A recent Putnam study indicated that 74% of financial advisors who leveraged social media during the pandemic initiated new relationships or onboarded new clients. If you’re not already leveraging social channels to connect with clients and prospects, you can learn more about how to get started here.
    2. Within email campaigns. Social proof is a powerful selling tool, and targeted email campaigns allow you to choose the testimonial or endorsement—along with the required disclosures—that will make the most impact on your intended recipient.
    3. On your website. Today’s prospects want to be able to educate themselves about you and your services. Even if they hear about you from a friend or colleague, it’s likely the first place they’ll look for more information is your website, so make sure yours reflects the value you provide.

If you’d like to learn more about leveraging digital channels to grow your business, catch our recent on-demand webinar, Grow Your Network: Client Prospecting in a Virtual World, hosted by our Senior Director of Demand Generation, Gwendolyn Legendy, and Director of Strategic Accounts Michael Gola.