In Historic First, SEC Allows Advisor Testimonials: What Does This Mean For RIAs?

Buried among 2020’s year-end news wrap-ups was the extraordinary passage of a final SEC rule that permits the use of testimonials and endorsements by advisors for the first time ever.

The spur for this move was the agency’s conviction that its advisor advertising policies, developed during the 1960s, when print and TV ads predominated, needed to accommodate today’s social media-driven digital era. Acknowledging the value of advisor marketing in client education, SEC Chairman Jay Clayton said the new framework for regulating advisors’ marketing communications is designed to “help improve the quality of information available to investors, enabling them to make more informed choices.”

Accordingly, the regulators view the use of advisor testimonials and endorsements as an important step in supporting advisors in their mission to educate clients on the advantages of working with financial professionals.

Here is a synopsis of the key takeaways contained in the 430-page report:

• It represents a major overhaul of all advisor marketing regs. The SEC replaced its rather strict, hard-and-fast approach to applying its ad rules with more flexible “principles-based provisions” to accommodate “the continual evolution and interplay of technology and advice. Accordingly, we are not adopting standardized disclosure requirements,” the final SEC rule states.
• Oversight of testimonials and endorsements is fairly simple. Performance ads will stay subject to a high degree of compliance oversight. Testimonials and endorsements on the other hand look like an easier lift: Besides the common sense prohibition against misleading the public, any testimonial or endorsement must disclose whether subjects or experts featured in the ad were paid to make their statement.
• The SEC will help advisors make the transition. The agency has promised to allocate resources so that “consultation with the Commission’s expert staff will be made available.”
• The rule is designed to accommodate future media. “We also believe this revision will help the definition [of advisor marketing] remain evergreen in the face of evolving technology and methods of communication.”[1]

[1]Final Rule, SEC Investment Adviser Marketing, Page 17, final SEC rule

For broker-dealers, wealth managers, financial advisors and asset managers, the rule represents a broad-based spectrum of possibilities for the future of client education and relationship building. 

• More thought leadership opportunities will abound. Financial advisors now have the regulatory support to exercise more latitude in how they communicate with and educate investors about their services and products.
• Practice management support from asset managers will attract greater distribution. Providing insights and education to advisors on how to take advantage of the rule offers a critical, value-added noncash compensation opportunity to asset managers looking to grow their base of distributors.
• Immediate support is needed for midsize firms. With fewer resources on hand than their larger counterparts have, many firms will turn to asset managers to fill their educational resource gap as they struggle to promote and merchandize the new framework to their advisors. Turnkey sales campaigns that clarify, package and communicate the best practices required for crafting effective advisor testimonials and endorsements will prove particularly useful.
• Testimonials and endorsements can leverage advisor expertise in new areas. Financial advisors will find that testimonials and endorsements can expand the breadth and depth of their engagement with their current clients as well.
• The new rules expand ways advisors can promote their personal brands online and grow their businesses. For investors who ask, “Can I trust this person to help me reach my goals?,” documented advisor testimonials and endorsements can ramp up the credibility factor in relationship-building.