Peter Mallouk, the CEO of Creative Planning Inc., has agreed to pay $250,000 to settle U.S. Securities and Exchange Commission charges regarding radio ad testimonials and family account violations at the $36.2 billion Leawood, Kan., advisor firm.
Mallouk grew his firm from $15 billion in 2016 to a $36.2 billion in 2018 using marketing, referral and advertising. Now the 48-year-old has agreed to pay $200,000 to the SEC to settle charges that the firm violated the SEC’s prohibitions against using client testimonials in ads after a local radio host who had become a pleased client of the firm did live voice overs praising Mallouk.
Mallouk also agreed to pay a $50,000 SEC fine for creating family accounts at Creative Planning without telling his chief compliance officer.
In a column he authored, Mallouk explained that Creative Planning had advertised with the local radio station since 2015 but was unaware that the radio host had added color commentary to a radio spot in 2016 without the firm’s permission, until the SEC brought the violation to his attention in 2017. By that time, the ad had run some 250 times.
“In January 2016, one of the radio hosts called Creative, met one of our advisors and became a client,” Mallouk said. “So far, so good. But then shortly after that, during the live radio ads, the radio host added his own color commentary, outside of our talking points or pre-recorded ad references, having no idea he was violating any rules or guidelines.
“The radio host said that he and his wife were really pleased with their wealth manager and expressed satisfaction with how much they got out of the process. In one spot, the radio host-client said of his experience with his Creative Planning advisor, ‘Andrew, he’s our guy and he shepherds us through the whole thing. He’s incredible. I bet you will have the same experience, too,’” Mallouk said.
The SEC found the ad violated Investment Advisers Act rules regarding the use of client testimonials in ads, as well as Creative Planning’s own policies, procedures and code of ethics. “Thankfully, the radio host apparently never mentioned performance or even brought up investments,” Mallouk said.
“Regardless, the SEC cited this as a 'nonscienter' violation (meaning the conduct was not intentional or reckless), calling it a testimonial that we should have been aware of and stopped,” he added.
If advisors utilize any live reads as part of their marketing, it may be time to reconsider, Mallouk said.
“Given our experience, we strongly encourage others to take a close look at their advertising, particularly in venues where there is not total control of what is said. For us, we are taking a straightforward solution to address this—no more live reads. It’s simply impossible to know what a radio host may say at any given time; it’s unreasonable to expect them to remember extensive guidelines and given they occur ongoing, it’s nearly impossible to oversee, with much of the monitoring needing to happen after the fact.”
The SEC also fined Creative Planning $50,000 because Mallouk opened and traded in three personal accounts at the firm, without telling his chief compliance officer.