The Securities and Exchange Commission's new marketing rule creates both promising opportunities to promote the practice and serious compliance issues of major concern to the industry.
“Advisors are very frustrated with the complexity of the rule,” says Michael Kim, president of AssetMark, a technology and advisory services provider. “They know they need to act, but many don’t know where to start, which is very worrying.”
This is confirmed by the survey data. In June, the Investment Advisers Association released survey results showing that for the second year in a row, the SEC's marketing rule is the top concern for advisors. 78 percent of respondents said advertising and marketing is the "hottest" compliance topic in their field, ahead of other hot topics such as cybersecurity, climate change, and investing in ESG.
“The thing is, advisors don't even know what to focus on because the rule changes are so big,” says Kim. "Expanding the definition of advertising has created a lot of uncertainty, especially now that it includes digital communications and social media to some extent."
A major change to the new rule includes guidance on when consultants can use testimonials and client testimonials to promote their business, as well as third-party ratings. The SEC lays out its principled approach, proposing several criteria that consultants must meet when using recommendations and other marketing tactics covered by the rule, whether they appear on social media, a company website, or printed brochures. Consultants may also include individual performance data if it is presented in a simple form that provides meaningful context.
Kim and others point out that some of the changes in the new rule, such as the approval and withdrawal provisions, represent a radical departure from the past and require a major overhaul of the company's compliance protocols.
But the SEC took that into account when it set the compliance date nearly two years after the final rule was passed. Meanwhile, a cottage industry of compliance consultants has sprung up to offer advice on how to comply with the rules, and the SEC itself has flagged some potential problems, promising a series of targeted investigations into how companies comply with the rules. .
Prime Capital Investment Advisors, RIA Barron, a ratings agency based in Overland Park, Kansas, used the period leading up to the effective date of the rule to review its policies and procedures and conduct advisory training. “We feel pretty well prepared,” says Anthony Woodard, the company's director of risk management and compliance.
Terra McBride, chief marketing officer at Prime Capital, says the company intends to use third-party ratings and customer reviews, which it sees as a "huge extension" of the types of casual conversations between customers and their friends or colleagues. this has always been an important element in how counselors build their practice.
“This business has a history of success through referrals,” McBride says. “We intend to fully explore all the ways we can incorporate reviews and recommendations into our marketing mix.”
Not all companies are so eager to take advantage of the new rule. Megan Carpenter, CEO of communications firm FiComm Partners, has published a marketing compliance guide that describes a different environment in which some tech-savvy companies will use legal options to increase their market presence while others will be more restrained.
“I think most traditional consultants will sit on the sidelines and not immediately incorporate third-party reviews, testimonials or ratings into their marketing mix,” Carpenter said.
“I think the wait and see approach stems from a lack of understanding of the impact consumer reviews have on how people make purchasing decisions today,” he said. “I also heard about a lot of potential loopholes for negative feedback, which is indicative of the widespread misunderstanding of the importance of owning your digital presence and not you.”
Robert Sophia, CEO of marketing consultancy Snappy Kraken, says most companies are largely ignoring the potential the new rule offers for growing their business, arguing that it will have a competitive advantage over companies that are starting to include endorsements, reviews and ratings on a principled basis. . nope
“Many studies have shown that using this type of social proof dramatically increases click-through rates, page conversions, and response rates,” he said. “To put it simply, if consultants don't have a strategy to capture this and incorporate it into their websites, landing pages, and marketing materials, they're already behind them.”
However, he says he would be shocked if "even 15% of consultants" use this rule by the end of next year.
One consulting firm that plans to introduce new freedoms in marketing rules is the JL Smith Group, an independent consulting firm based in Ohio and affiliated with Prosperity Capital Advisors RIA.
Matt Seitz, Chief Marketing Officer at JL Smith, describes the process of working with the company's Chief Compliance Officer to determine which elements of the rule they want to focus on when updating the company's compliance manual, and then continue to train consultants on the changes. . . These trainings were delivered in "several different formats", including weekly webinars and one-on-one sessions with a Seitz consultant. The firm has also added a marketing compliance module to its annual compliance training.
“We intend to incorporate testimonials and referrals into our existing marketing campaigns to showcase our value proposition and strengthen our brand,” Seitz said. “For me, this is an important part of the new rule because it allows our customers and partners to tell our story.”
The same goes for third-party qualifications, which will impact your branding and lead generation efforts, and may even play a role in attracting new talent to the company, according to J.L. Smith.
“I also see that third party qualifications will be required to bring in new consultants and staff to our team,” he said. "People want to know they're joining a strong company with a loyal customer base."
Compliance experts stress that any company planning to use this rule must continually educate consultants and advocate for maintaining relative simplicity.
“A company's compliance program is only as effective as its advisors, and if it's too complex or uninformed, the company sets up its advisors to fail,” says Alexandria McCarthy, director of marketing for Skience, a wealthy enterprise. Management Company. consulting company and technology provider.
Many provisions of the marketing standards are quite simple. Consultants are prohibited from making false statements or providing any material to potential clients that could, for example, lead to "false or misleading statements".
When reporting on investment strategy performance, the SEC requires advisors to contextualize the information by insisting on the inclusion of net income in addition to gross income. In addition, the SEC requires advisors to include specific time frames when describing performance.
Seitz suggests including 1, 3, 5, and 10 year earnings data in your marketing materials, "which are equally prominent." “The most important thing to remember is that consultants cannot artificially choose when to deliver results,” he says.
It remains an open question how the SEC plans to conduct inspections and possibly take legal action against companies in accordance with trading rules. The Securities and Exchange Commission did not respond to a request for comment on the article, although it did notify the industry of an upcoming ad hoc revision of the rule.
Mark Matson, CEO of Matson Money, who signed the new rule (he has already recorded over 20 hours of customer video feedback), spoke about the company's important compliance initiative before the rule is passed. rewriting its policies, procedures and controls.
“Not only do you need to rewrite the procedures, but you also need to change the policy review process and the tracking process because the SEC will be checking to see if you meet the filing requirements,” says Mattson. "You need to check how you make changes in accordance with this policy."
While the SEC conducts investigations into companies' compliance with the rule, many advisers hope these reviews will have an educational component as experts observe well-intentioned efforts by companies and provide feedback on what they could do better.
Snappy Kraken's Sophia warns that companies looking to take advantage of the marketing rule should carefully review their compliance protocols. When the SEC issued a risk warning on the rule in September, it interpreted it as informing the industry that compliance in this area would be a high priority.
"They basically say, 'Beware of this, because that's how we are!' Sofia says. "As enforcement intensifies every year, and it will be easy to find consultants who add reviews, endorsements, and ratings to their marketing, consultants who make mistakes risk being subject to unwanted scrutiny by the SEC."
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