What a strange world we find ourselves in today. Financial advisors are able to communicate using more methods than ever before. Digital media is becoming a greater and greater part of our daily lives. Advisors are urged to blog and participate in social media and through it all they are encouraged to engage with their audience.

Unfortunately there’s a black cloud hanging over their heads as they find themselves in fear of having a client actually say something nice about them on one of these digital media platforms. I see many discussion groups talk about what to do if a client likes a Facebook page or endorses an adviser on LinkedIn. Beware the testimonial.

There seems to be confusing information regarding the testimonial rule and its applicability. The key point usually made is that improper testimonials are statements by clients referring to the advisor’s skill as an investment advisor. 

Because of this, many advisors seek ways to get client testimonials on points other than the advisor’s investment advice skills. They seek client endorsements as to the advisor being a nice person or a community leader or something along those lines. Some advisors are out there trying to get non-clients like other professionals or well known people in the community to give their thumbs up to their ability as an advisor, even sometimes specifically regarding investments.

SEC rule 206(4)-1(a)(1) applies to registered investment advisors and by extension their representatives and reads as follows: “a. It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of section 206(4) of the Act for any investment adviser registered or required to be registered under section 203 of the Act, directly or indirectly, to publish, circulate, or distribute any advertisement: 1. Which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser….”

In a release last year about social media, the commission added: “The term “testimonial” is not defined in Rule 206(4)-1(a)(1), but SEC staff consistently interprets that term to include a statement of a client's experience with, or endorsement of, an investment adviser.”

This social media guidance from the commission gives credence to the interpretation of a testimonial as a statement from a client, but does little to back the assertion that a testimonial is skill specific.

Take a step back, and I find myself wondering why it matters. Do advisors really want or need to use clients in their advertising? I’m not sure this is particularly wise. Trying to flirt with that line is a good way to find yourself on the wrong side of it. 

The actual testimonial rule specifically states that testimonials in advertising are deemed fraudulent. Fraud is a big deal. Why invite such scrutiny from regulators?

Beyond the regulators, advisors have a fiduciary duty and many like to make mention of that.  Clients come first, after all. Who does the testimonial help, the client or the advisor?

Of course, we want people to know that our clients think very highly of our skills as investment advisors but it’s not the rest the world’s business who our clients are.  Moreover, in a world with such heightened sensitivity about privacy and security of personal information I think testimonials could send a message that will not be as well received today as perhaps it might have been in the past.

Don’t discount the tacky factor. Think about it for a minute when you’re at your local club having a nice time and some guy starts talking about his clients, dropping names all over the bar. Do you think “Wow, he’s got some bigwig clients. I wish I could be a client, too.” or do you think, “I wonder if his clients know that he is running his mouth at the bar. What a jerk!”

I realize that tacky is a subjective term and a lot of this depends on your personal style but when I talk about client situations to people that aren’t clients, I never mentioned the client’s name or give any specifics such that they could identify who they are. I would never say “one of my clients is one of the area’s prominent neurosurgeons” for instance. 

People do that to drop in that they work with a brain surgeon thinking it makes them sound smart.  Instead of showcasing your abilities, you are also presenting a clear example of your lack of discretion.  A simple, “I saw a case where….” is an adequate introduction to most cases.

How confidential are your confidential dealings with clients? Do you make promises about maintaining confidentiality and then drop client names at social functions?

What do you do when prospective clients ask for client references? Some people have clients that that love them and are willing to have those conversations. I know we have many that would do that for us but we don’t ask them to.  We’re supposed to be serving the clients not getting the clients to serve us.

Again, don’t get me wrong. We love to have clients singing our praise out in the community and they do but we know they do this to help their friends, not us.  We’ve done such a good job, they are confident we will be good to those they care about.  We’ve been good to and for them, after all.  It is a natural result of doing a good job.

Since it is really all about them, I am not interested in having total strangers calling our clients to ask them about their experience with us. There is plenty of evidence that we know what we’re doing and do it with care.

When the question comes, I gently explain that there is very little value in getting client references because no advisor would ever put them in touch with a dissatisfied client. The vast majority of prospective clients are referred to us by someone they trust or at least ran our names by someone they trust before visiting us, so in a sense, they already have a reference.  Through our process, they get to know us and how we work first hand and can judge rapport and style.

Today’s consumer is doing more research on the Web, where there is a wealth of information about us. Our clients are fairly well-connected and they know plenty of lawyers and accountants.  I’ve been working in the area over 20 years and these same professionals know us, what it is like to work with us, and whether they think we are any good.

For advisors who are just getting started, you may be saying to yourself, “That’s fine for you, Dan, but I haven’t been in business as long.” I realize there’s a lot of truth to that. However, I don’t think you need to rely on an approach that flirts with the lines drawn by the testimonial rule to be successful. I certainly don’t think you need to be a name dropper.

You just need to do good work and word will get out without you pushing. There really isn’t much more magic to it than that, and yes, it can take a long time. You can speed that along by promoting the good work you do through advertising, if you wish.  But, if you put a client in an uncomfortable position or turn off a prospective client due to your lack of discretion or find regulators scrutinizing your operations more closely because of your willingness to flirt with the testimonial line, it will take a lot longer.

Dan Moisand, CFP, has been featured as one of the America’s top independent financial advisors by Financial Planning, Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines.  He practices in Melbourne, Fla.  You can reach him at [email protected]