Registered investment advisor firms are in various stages of complying with the Securities and Exchange Commission’s new marketing rule and preparing to benefit from it.
The new marketing rule — which has a compliance deadline of November 4 — has been top of mind for the compliance staff of RIA firms. Around 78% of compliance staff at 425 RIA firms surveyed by the Investment Adviser Association have said it’s the “hottest” compliance topic they face so far this year.
The new rule allows advisors to share testimonials and endorsements as well as use third-party ratings and hypothetical performance.
It prohibits certain practices, such as making untrue statements or omitting material facts, discussing possible benefits without covering corresponding risks, including or excluding performance results in a way that’s not fair and balanced, or giving out materially misleading information.
Preparing for this new rule takes time, says Matt Seitz, chief marketing officer at wealth and tax planning company JL Smith. The company offers financial planning and advisory services through Prosperity Capital Advisors.
“[There] are more tools in the toolbox” for client engagement, according to Seitz, who worked with the company’s chief compliance officer who “put together a whole project plan on taking it piece by piece.” The comprehension and preparations have also included attending webinars and speaking with lawyers, he said.
JL Smith is focusing on using testimonials and endorsements, Seitz said, noting that the company hasn’t solicited any from clients, but clients have been sending them anyway.
The new rule permits the use of testimonials and endorsements, subject to compliance with the disclosure, oversight and written agreement, and disqualification, according to the Wagner Law Group.
The biggest compliance challenge for JL Smith is supervision, specifically regarding the use of third-party ratings, according to Seitz.
Content in a site that houses third-party ratings, for example, would be “constantly changing and evolving, as people are adding, editing the reviews,” Seitz said. “I think that is going to be a toll from a supervision aspect for compliance departments.”
Edelman Financial Engines plans to offer clients the opportunity to tell their stories in “less transactional, more personal ways,” according to Jason Van de Loo, head of wealth planning and marketing at the company.
The company has been ranked highly by certain third parties, but the company has “always felt like it's difficult to tell that story because of some of the handcuffs” placed on what’s permissible in communications or marketing, Van de Loo said.
The new rule will remove those handcuffs. “[W]e're excited to be able to be a little bit more creative and give our clients the opportunity to express in their own words how they feel about their relationship with us,” Van de Loo said.
Meanwhile, Edelman is streamlining information on its website and social media, according to Joe Loparco, the firm’s head of external communications.
Advisors’ use of LinkedIn, Facebook, Twitter, YouTube and Instagram has been rising in recent years, with the use of LinkedIn having been the most pervasive, according to a report from the Investment Adviser Association and National Regulatory Services.
Mark Matson, founder and chief executive officer of RIA firm Matson Money, has created a master list of “old materials that need to be scrubbed and redone” and a list of the things the company has wanted to do and “are now possible” because of the new rule.
While Matson is confident his firm will meet the compliance deadline, he believes smaller RIA firms may be facing more challenges because there’s “lot of red tape to jump through” and “smaller firms are going to get eaten up with legal expenses.”
Matson said the new rule is a “mess” and there’s a lot of “confusion” about what some of the provisions mean, such as the “fair and balanced” component of the rule.
“[I]f you show a report that says stock picking doesn’t work, do you have to show another report that says stock picking does work even if you don’t believe the validity of the report?” he asked.
Matson expects some of that confusion to be cleared up with enforcement or court cases, and until such time that they are cleared up, “a lot of people are going to be fumbling around in the dark again.”
Carson Group has updated its partner resources, including its “Communications with the Public” guide, according to Don Slaughter, compliance manager at the company. That guide provides Carson Group’s partner offices with guidance on marketing communications to current and prospective clients.
The company’s ad review compliance team is working to provide partner offices with a summary of the rule and best practices before the compliance deadline, according to Slaughter.
Slaughter notes that the new rule is medium-agnostic whereas the old rule was specific to written communications.
Compliance issues aside, advisors believe that when done right, using the new engagement tools available to them through the marketing rule will benefit their relationships with clients and the ability to attract new ones.
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