The Securities and Exchange Commission’s decision to permit advisors to use testimonials in their marketing materials is opening the door to a brand new world of online marketing that will allow their clients to review and rate them online in a fashion similar to Yelp-style restaurant reviews.
Over the last two decades, research concerns like Morningstar and Dalbar have floated the concept of rating advisors. Their proposals have been greeted with scorn from advisors, who have argued that that their services are way too personal and subjective to be distilled into ratings and rankings the way mutual funds are.
But the SEC’s move to permit testimonials changes the entire ballgame, creating a more open platform for clients to share their views, both positive and negative, on the services they receive from advisors for all to see. This change promises to modernize advisor marketing in ways that are simultaneously exciting and threatening to the traditional referral model that has ruled the client acquisition process for decades.
Prior to the advent of the new rule, advisors' referral networks were "limited to people their clients came into contact with," says Susan Theder, chief marketing and experience officer for FMG Suite. "Now prospects will be influenced by total strangers."
This could greatly expand their network of prospects, but it also brings them into a much larger world over which they have far less control. There is a set of rules advisors will need to follow, lest they face discipline.
For instance, it won’t pass muster if advisors cherry-pick testimonials from a handful of A-list clients while ignoring the rest. That means they can't send an e-mail to their best clients and ask them to provide a review. However, they can send an e-mail to all clients asking for review or add a request to their e-mail signature. They must also use consistent messaging and language to avert bias.
The advisors must demonstrate that their process lets all clients share their opinions. If reviews start pouring, the process of managing them could become daunting. For broker-dealers and large RIAs with national footprints, the problem is magnified, notes David Christensen, product development manager at FMG Suite. Bigger advisory firms are tasked with trying to manage their reputations while being simultaneously charged with compliance controls. FMG is building a system, currently in beta test, to help advisors and larger institutions manage the process.
Advisors can feature positive testimonials on their home pages as long as they provide a link to all the reviews elsewhere on their websites. Christensen says the system needs to cover all clients and ask them consistent questions.
“The SEC realizes that financial advisors have been operating with one hand tied behind their back,” Christensen says. The agency is “saying this is how clients want to choose” advisors, he adds.
He maintains that the SEC’s longtime ban on testimonials left the advisor selection/client acquisition process far behind other sectors of the financial services industry. Insurance companies “live and die by online reviews,” he says.