New SEC rules on financial advisor communications represent a welcome update to industry marketing practices and a unique opportunity for firms and advisors able to move quickly.
The SEC’s amendment of Rule 206(4)-1 under the Investment Advisers Act of 1940, which took effect on May 4, allows financial advisors for the first time to include testimonials and endorsements in their marketing materials. This presents a timely opportunity for growth-oriented advisors to cut through the noise and make a powerful statement.
In today’s marketplace, consumers—especially younger consumers—are accustomed to going online for reviews before making spending decisions, whether those decisions involve which doctor to use, which car to buy or which restaurant to have dinner at tonight. The SEC rule allows financial advisors to feature powerful testimonials and endorsements when marketing to prospective clients. The ruling, which is well crafted and surprisingly advisor friendly, provides advisors with significant new leeway. Specifically, it allows advisors to use:
• Testimonials, or comments from clients about their experience, presented in video or text. Testimonials have the potential to become hugely influential because they allow prospects to hear the opinions of people like themselves.
• Endorsements, or comments from third parties who are not clients of the advisor. Third-party endorsements will play a growing role in the industry as companies build credibility from rating and ranking advisors. The SEC ruling could have a major impact on the competition for clients and assets.
Growth oriented financial advisors who move first to take advantage of this shift could achieve a significant advantage, at least temporarily, from breakthrough marketing content that cuts through the noise of a crowded marketplace and makes them stand out. Advisors looking to capitalize on this opportunity should follow these five recommendations:
1. Work with compliance experts. Although these regulations represent a big opportunity to grow your business, they also create the risk of running afoul of the rules. These rules are complicated and will become even more complicated in practice. There are clear prohibitions and requirements. For example, the rules include a prohibition against using testimonials from “bad actors.” That places the onus on you, the financial advisor, to conduct due diligence and make sure there are no skeletons in the closet. Because ignorance will be no defense for advisors that violate these provisions, include your legal and compliance experts at every step of the way.
2. Avoid performance—at least for now. For now, any discussions of investment or financial performance in client testimonials and endorsements carry too much risk and will require too much time and compliance burden to make it worth the effort. The good news is: the industry has changed. Although performance is an important factor, clients today don’t see their work with financial advisors as transactional. They are looking for service and relationship. Focus on that.
3. Mirror your prospects. With testimonials, use clients that reflect the demographics and characteristics of your target client base. If you’re looking to attract millennials as clients, make sure the clients giving your testimonials look and sound like, and represent common needs of millennials—not their parents.
4. Provide testimonials in a “bite-sized” format. As consumers, we all generally have short attention spans, especially for marketing. When incorporating client testimonial into marketing, think about a few “headline level sentiments” from three or so happy clients. Additionally, it’s a great idea to consider a dedicated area of your website where prospects can see the unabridged testimonial to get deeper context.
5. Move quickly and carefully. At some point, this type of marketing will become standard. However, because this content has been prohibited to this point, the first endorsements and testimonials will have the biggest impact. For a period of time, marketing that includes client testimonials has an opportunity to really break through the clutter.
Despite any challenges, the potential benefits of introducing testimonials and endorsements make it more than worthwhile for growth-oriented advisors. If you fall into that category, being an early adopter will give you a meaningful head start. First movers might even build a lasting competitive advantage by defining their brands as client focused and associating themselves with superior service and relationships.
Even if you don’t get in early, you should start moving in this direction. Testimonials and endorsements will become a meaningful driver of financial advisor assets and client relationships. This will be a win-win for advisors and clients, and will create a virtuous circle for the industry: The SEC ruling allows advisors to grow their businesses by using client testimonials and endorsements; this gives a bigger voice to the clients and provides more transparency and information, making other consumers better informed in their own choice of own financial advisors.
Kevin Darlington is general manager at Broadridge Advisor Solutions.