Good news for advisors! The SEC (Securities and Exchange Commission) finalized an amendment to the Investment advisor Marketing rule this May. This is the first change to the marketing rule since 1961, and one some may say is long overdue. How does this ruling directly affect your digital marketing?
Depending on your firm’s compliance regulations, you will be able to enable comments on your social media accounts (like YouTube), collect endorsements (like on LinkedIn), receive ratings (like Facebook and Google) and add testimonials.
However, updating a communication regulation that has been in place for the last 40 years comes with an expected, yet still whopping, 430 pages. Compliance with the new amendment won’t go into effect until November 4, 2022, giving advisors and their firms plenty of time to consult with the SEC before adopting these new communication rules.
While we’re not attorneys or lawyers by any means, we have skimmed through those 430 pages with special attention to the areas that will affect digital marketing and pulled out a few noteworthy items and our interpretation of them:
Advertisements get special treatment, but what exactly counts as an advertisement? According to the amendment, an “advertisement” is any direct or indirect communication an investment advisor makes that:
Whether a communication is an advertisement depends on the facts and circumstances (e.g., whether the communication “offers” the advisor’s investment advisory services with regard to securities).
But, don’t worry. That does not include one-on-one communications regardless of whether that communication is with a person or multiple persons that represent one entity or account. Unless, of course, the communication includes hypothetical performance that is not in response to an unsolicited investor request or to a private fund investor. Anything with performance is going to be rejected or require several long disclosures.
Just because one-on-one communication isn’t treated as an advertisement, doesn’t mean you can cheat the system. This new amendment calls out customizing a template presentation or mass mailing by filling in the name of an investor and/or including other basic information about the investor as not resulting as a one-on-one communication.
If it’s not an advertisement, you have far more flexibility. We’re happy to report that the following are no longer considered advertisements under this new rule:
This is great news for market commentary videos - as long as you don’t promote your services! Materials that provide an advisor’s general market commentary (including during press interviews) are unlikely to offer advisory services with regard to securities. Market commentary aims to inform current and prospective investors, including private fund investors, of market and regulatory developments in the broader financial ecosystem. These materials also help current investors interpret market and regulatory shifts by providing context when reviewing investments in their portfolios, and educate investors. In contrast, for example, this rule would view an article or white paper that provides general market commentary and concludes with a description of how the advisor’s securities-related services can help prospective investors invest in the market as offering the advisor’s services.
Testimonials and endorsements will include opinions or statements by persons about the investment advisory expertise or capabilities of the advisor or its supervised persons. Testimonials and endorsements also include statements in an advertisement about an advisor or its supervised person’s qualities (e.g., trustworthiness, diligence or judgment) or expertise or capabilities in other contexts, when the statements suggest that the qualities, capabilities or expertise are relevant to the advertised investment advisory services.
The difference between a testimonial and endorsement is whether or not the person making the statement is a client or not. If they are a client, then it’s a testimonial. If they’re not, then it’s an endorsement. The difference between the two doesn’t make a huge impact as both require the disclosures below. However, there are a few more restrictions on the paid endorsements when they become solicitations on your behalf (e.g. Smart Advisor, Dave Ramsey, an Estate Attorney or any other entity that may be sending you referrals).
What about the services we offer you? Does ghost writing or social media content creation count as an endorsement? No. Any materials or communications prepared for you by a third party is not considered an endorsement and would not require the endorsement disclosures. However, those materials may count as an advertisement as described above and may need to be reviewed prior to dissemination.
What about awards you win through publications like Barron’s, Forbes, Entrepreneur, etc? We’re not 100% sure, but we do think these would count as endorsements.
You must clearly and prominently disclose the following (“Clearly and prominently” means included within the testimonial or endorsement, or in the case of an oral testimonial or endorsement, provided at the same time):
This new rule will permit advisors to use third-party ratings, subject to conditions, when the ratings are conducted in the ordinary course of business, and we require that the investment advisor have a reasonable basis to believe that any questionnaire or survey used in the preparation of the third-party rating is structured to make it equally easy for a participant to provide favorable and unfavorable responses, and is not designed or prepared to produce any predetermined result (the “due diligence requirement”). This should make Google and Facebook ratings available to your firm, since it’s equally easy to post a negative rating as it is a positive one.
It’s an exciting time for advisors to capitalize on digital marketing. Every advisor we work with has made it a priority to put their clients first, and we’re excited to see you have the opportunity to promote those positive experiences. We do caution, however, that you won’t be allowed to stifle the negative comments. Be sure you’re comfortable with the procedures you have in place on managing public relations before “turning on” comments and ratings.
We also recommend waiting on your compliance department to review and set internal processes prior to implementing these new rules or contracting a third-party like ourselves to move forward in creating new marketing strategies. After you have guidance from your internal compliance departments, we would be more than happy to walk you through turning on comments, ratings, producing videos and more! Kalli Collective’s just a call or email away!
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