Let’s be real. When we talk to advisors about marketing, oftentimes they tell us they don’t do any. They rely on unsolicited referrals from clients. “Organic growth” they call it. But organic growth is more than just having a client refer a friend or family member to you without you asking them to. According to Hubspot, organic marketing is a strategy that generates traffic to your business over time rather than using paid methods. This includes blog posts, case studies, guest posts, unpaid tweets and Facebook updates. Organic marketing uses SEO, social media and a variety of other channels to increase brand awareness. That is to say, testimonials and endorsements are a key part of any organic marketing strategy.
You can’t dispute the statistics either. When it comes to testimonials and endorsements:
• 92% of consumers read online reviews and testimonials when considering a purchase. (Vendasta)
• 95% of people say that reviews—whether positive, or negative—influence their purchasing decisions. (Wyzowl)
• 90% of buyers who read positive customer success content claimed that it influenced their purchasing decisions. (Dimensional Research)
• Customer testimonials have the highest effectiveness rating for content marketing at 89%. (Social Fresh)
• The regular use of testimonials can help you generate 62% more revenue from every customer, not just once, but every time they visit your site. (BigCommerce)
• 88% of consumers trust online reviews as much as personal recommendations. (Search Engine Land)
• 92% of people will trust a recommendation from a peer, and 70% of people will trust a recommendation from someone they don’t even know. (Nielsen)
• 9 out of 10 people say they trust what a customer says about a business more than what that business says about itself. (Wyzowl)
• 91% of millennials trust online reviews as much as friends and family. (BrightLocal)
• 92% of consumers trust peer recommendations. (Search Engine Watch)
I won’t go to a restaurant, watch a movie or buy a pair of shoes without reading the reviews first. And if they aren’t great, I’m not wasting my time, money or energy. Here’s another fact—I’m also a millennial. In a time where advisors are looking to keep assets at their firms as they move from one generation to the next, they can’t afford to be “old school.” Advisors have to conform their business growth strategies to the times, and that means getting online to build their brand.
I got my first mobile phone when I was 16. Our family bought our first computer when I was 13. We only had one television in our house. Now? The average American has access to more than 10 connected devices in their household. Mobile devices, excluding tablets, generated about half of all website traffic globally. We have come a long way since my youth. With technology so accessible, investors are going online to absorb information. If you aren’t online with them, providing them the information they need to make buying decisions, then you can’t blame them for moving their business to someone who does.
The New Marketing Rule
In December 2020, the Securities and Exchange Commission (“SEC”) finalized amendments to its advertising and solicitation rules under the Investment Advisers Act of 1940. Those finalized amendments merged the Advisers Act’s advertising rule (Rule 206(4)-1) with the cash solicitation rule (Rule 206(4)-3) under a new rule to make the new Rule 206(4)-1, the Investment Adviser Marketing rule.
Under the Marketing Rule, SEC registered firms can now use testimonials and endorsements in their marketing. Under the rule, a testimonial is any statement by a current client about the client’s experience with the investment advisor or its staff that solicits or refers any current or prospective client to be a client of the investment advisor. An endorsement is essentially a testimonial made by someone other than a current client that solicits or refers a person to be a client of the advisor.
According to the SEC, the definitions of testimonial and endorsement include “refer-a-friend” programs, actions of lead-generation firms or advisor referral networks, blogger website reviews and referrals by lawyers and other service providers. However, the SEC noted providing client lists, selling lists of prospective investors to an investment advisor and hiring a consultant to aid investors in reviewing investment advisors or private funds generally would not be viewed as an endorsement or testimonial.
Disclosure Requirements
Advertisements must clearly and prominently disclose whether the person giving the testimonial or endorsement (the “promoter”) is a client and whether the promoter is compensated. The testimonial or endorsement must include the following:
• Clear and prominent summary disclosure that:
• The testimonial was given by a current client or investor, or that the endorsement was given by a person other than a current client or investor;
• Cash or non-cash compensation was provided for the testimonial or endorsement, if applicable; and
• A brief statement of any material conflicts of interest on the part of the person giving the testimonial or endorsement resulting from the investment advisor’s relationship with such person.
Additionally, where cash and non-cash compensation (e.g., directed brokerage, awards, or other prizes, and reduced advisory fees) is provided in exchange for the testimonial or endorsement, the details of the arrangement must be disclosed.
The SEC notes that the clear and prominent disclosures should be “succinct.” According to the SEC, in order to be clear and prominent, the disclosures must be “at least as prominent” as the testimonial or endorsement, meaning that such disclosures must be within the testimonial or endorsement itself, or, in the case of an oral testimonial or endorsement, provided at the same time. In order for written disclosures to satisfy the clear and prominent requirement, the SEC noted that they should appear “close” to the associated statement so that the statement and the disclosure can be read at the same time and should not be disclosed in a separate location to which the reader is referred.
The scope of the rule goes far beyond Google reviews, LinkedIn endorsements and Facebook comments. Here are some examples of statements that could be a deemed a testimonial or endorsement under the rule:
• Social media posts where the RIA has adopted or is involved in the preparation of the posts or otherwise “entangled” in the communication;
• Statements made by portfolio company executives about their experience working with the RIA posted on the RIA’s website;
• Statements made by a vendor who is a client and is charged a reduced management fee.
So How Do I Do This?
Now that you understand how testimonials and endorsements work, how do you go about getting them?
• Send out a survey.
• Provide a link to your Google My Business page.
• Request endorsements through LinkedIn.
• Send out an email blast to clients requesting testimonials.
• Record video testimonials for your website.
• Entice clients with the promise of a gift card
• Create a referral program
Once you have your testimonials, there are a few things you have to keep in mind. You can’t cherry pick. That means you must publish all the testimonials, not just the good ones. Don’t put them in an arbitrary order or try to hide bad reviews. If you use testimonials and endorsements in your marketing, you have to ensure that your advertising piece is fair and balanced. Here is the good news. If you gather your testimonials and endorsements and find they are less then stellar, you can choose not to publish any of them.
A Word To The Wise
Keep in mind that the SEC’s Marketing Rule applies to SEC registered investment advisory firms. If you are a state registered firm, your state may still prohibit the use of testimonials and endorsements. If you are registered in multiple states, you will be bound by the most restrictive laws, so if any one of them prohibits testimonials and testimonials, you can’t use them. Similarly, while your firm may be able to use testimonials and endorsements, your firm can still prohibit their use as matter of policy. In this case, utilizing testimonials would violate your firm’s compliance policies.
Fear Not
Despite the fact that the Marketing Rule was discussed in a 430-page document, these changes are a huge step forward for RIAs seeking to implement fundamental marketing strategies to promote organic growth of their businesses. According to Schwab’s 2023 RIA Benchmarking Study, in 2022, the average RIA saw a 6.2% increase in the number of clients, 56% of which came from referrals of existing clients. Meanwhile, top performing firms saw a 55% increase in new clients. How did they achieve this? These firms identified their ideal client, communicated their unique value proposition, created marketing plans and implemented strategies for referrals. In short, they didn’t wait for unsolicited referrals from clients. These firms are taking advantage of the new Marketing Rule, using it to fuel massive growth in their businesses.
Leila Shaver is the founder of My RIA Lawyer.