/cloudfront-us-east-1.images.arcpublishing.com/pmn/RLFKPUBVLFERREW24PZHK7ARSU.jpg "The Securities and Exchange Commission's (SEC) marketing rule goes into effect today. Are financial advisors ready?")
The SEC's new marketing rule simultaneously creates promising opportunities for practice advancement along with significant compliance challenges that have raised significant industry concerns.
"Advisors are overwhelmed by the complexities of the standard," said Michael Kim, president of consulting firm and technology provider AssetMark. "They know they have to act, but many don't know where to start, and that's very scary."
Survey data bears this out: In June, the Investment Advisers Association released a survey showing that the SEC's marketing rules were a top concern among advisers for the second year in a row. 78% of survey respondents said advertising and marketing is the "hottest" compliance topic in their field, citing other important topics such as cybersecurity, climate change, investing in the environment, society and governance.
"The reality is that advisors don't even know where to turn because the rule changes are so broad," says Kim. "The expansion of the definition of advertising has created a lot of ambiguity, especially since it now includes digital communications and social networks to some extent."
One of the key changes in the new rule is guidance on when advisors can use customer reviews and testimonials to promote their business, as well as third-party ratings. The SEC describes a principles-based approach and presents several criteria that advisers must meet when using regulatory endorsements and other marketing tactics, whether on social media, on the firm's website or in a printed brochure. Advisors can also include individual performance data if it is presented in a simple form and provides useful context.
Kim and others say some of the new rule's changes, such as provisions on approvals and certifications, are significant departures from the past and require a major overhaul of company compliance protocols.
But the Securities and Exchange Commission had that in mind when it set the compliance date, nearly two years after the final rule was adopted. Meanwhile, a cottage industry of compliance consultants has sprung up to advise on how to respond to the rules, and the Securities and Exchange Commission itself has highlighted some potential problems and promised a series of audits aimed at examining how companies are complying. with the rules .
Prime Capital Investment Advisors, an Overland Park, Kansas-based Barron Corporation RIA, used the period before the effective date to review its policies and procedures and conduct advisor training. "We feel very prepared," said Anthony Woodward, the company's director of risk and compliance.
Tera McBride, chief marketing officer at Prime Capital, says the company wants to use third-party ratings and customer reviews, which she sees as a "huge extension" of the type of conversations that customers and their friends or colleagues typically have. they were always a key element in the way Consultants created their practices.
"This company has a proven track record of success with referrals," says McBride. "We want to explore all the ways we can incorporate feedback and endorsements 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, which has published a marketing compliance guide, describes a diverse landscape where some standard tech-savvy companies will take advantage of opportunities to improve their online presence while others will be more cautious. . .
"I think most traditional consultants are on the sidelines and don't immediately incorporate third-party testimonials, endorsements, or reviews into their marketing mix," says Carpenter.
"I think the wait-and-see approach comes from understanding the importance of consumer recommendations in people's purchasing decisions today," he says. "I've also heard a lot of gripes about the possibility of negative reviews, which shows a general misunderstanding of the importance of owning your digital presence rather than owning your own."
Robert Sophia, CEO of marketing consultancy Snappy Kraken, says most companies are ignoring the potential that fundamentally new foundations offer to grow their business, arguing that those that include early-stage approvals, reviews and assessments offer companies a competitive advantage. They won't understand.
"Several studies have shown that using social proof like this significantly increases click-through rates, page conversion rates, and response rates," he says. "In other words, if consultants don't already have a strategy for adding and embedding it into websites, landing pages, and marketing materials, they're already behind."
However, he says he would be surprised if even 15% of councilors use the rule by the end of next year.
One consulting firm looking to add new freedoms to marketing rules is the JL Smith Group, an Ohio-based independent consulting firm affiliated with Prosperity Capital Advisors RIA.
Matt Seitz, Chief Marketing Officer at JL Smith, describes a collaborative process where he worked with the company's chief compliance officer to identify organizational elements he wanted to focus on, update the company's compliance manual, and then move on to training I-consultants. . Worth the changes. This training came "in a variety of ways," Seitz says, including a weekly webinar from a business consultant and one-on-one sessions. The company also added a Marketing Regulation module to its annual compliance training.
"We plan to incorporate testimonials and testimonials into our marketing campaigns to demonstrate our value proposition and enhance our brand," says Seitz. "For me, this is an important part of the new foundation because it allows us to help our customers and partners tell our story."
Likewise, third-party evaluations, according to JL Smith, will help build the brand, which can also play a role in generating leads and attracting new talent to the company.
"I also find third-party reviews helpful in recruiting new consultants and staff for our team," he says. "People want to know they're joining a solid company with loyal customers."
Compliance experts point out that any company planning to use the rule should constantly train advisers and recommend keeping things relatively simple.
"A company's compliance program is only as effective as its advisors can deliver, and when it's too complex or misleading, the company sets its advisors up for failure," said Alexandria McCarthy, chief marketing officer at asset management firm Skience. . . Corporation, Consulting Firm and Technology Provider.
Many of the provisions of the marketing rules are quite simple. For example, advisers are prohibited from making false statements or providing material to potential clients that may be "false or misleading."
When reporting investment strategy performance data, the Securities and Exchange Commission requires advisers to contextualize the information and include net performance alongside aggregate performance. Also, the Securities and Exchange Commission (SEC) requires advisers to include specific time periods to describe their performance results.
Seitz suggests including one-year, three-year, five-year and ten-year returns in marketing materials, "all of which are equally important." "The most important thing to note here is that advisors cannot choose charts to artificially visualize results," he says.
It is not clear how the Securities and Exchange Commission will investigate and possibly take enforcement action against the companies under marketing rules. The Securities and Exchange Commission did not respond to a request for comment for this story, though it has warned the industry that focused revisions to the rule will be made.
Fully committed to the new rule (already producing over 20 hours of customer feedback videos), Matson Money CEO Mark Matson described the important compliance initiative his company was taking ahead of the rule's implementation date. Complete renovation included. its policies, procedures and oversight mechanisms.
"Not only do you need to rewrite the procedures, but you also need to change the policy review and follow-up process because the Securities and Exchange Commission will be checking whether you meet the documentation requirements," says Mattson. "You must explain how you are making the changes according to these instructions."
Although the SEC conducts compliance audits of companies, many advisors expect these reviews to have an educational component, as auditors are looking for good efforts to provide feedback on what companies are trying to comply with and what they can do about it.
Snappy Kraken's Sophia warns that companies looking to capitalize on their marketing base should check their compliance protocols. When the Securities and Exchange Commission (SEC) issued a risk warning about the rule in September, it indicated that compliance in this area would be a top priority for the industry.
"Basically, they're saying, 'Watch out for this, because we will!'" Sophia says, "As law enforcement grows every year, and it's easy to identify advisors who add testimonials, endorsements, and reviews to their marketing, advisors who fail are certainly not wanted by the SEC. they are at risk of examination".
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