For years, financial advisors have approached marketing with a tentative—some might even say fearful—mindset.

 

Some have even taken the approach that no marketing is better than the possibility of straying from the SEC’s outdated advertising rules and risk the wrath that could come with a firm audit.

 

All of that may be about to change. In a move that the industry has been calling for for years, the SEC updated its rules for advertising just before the end of 2020.

 

What does the updated advertising rule mean for advisors, and how should you think about marketing in this new era? That’s what today’s blog will answer.

 


What’s Included in the Updated SEC Advertising Rule?


 

The updates to Rule 206(4)-1 (“The Advertising Rule”) make drastic changes to how advisors can market their firms, and the new rule also includes adjustments to other things advisors need to be aware of, like books and records and Form ADV updates.

 

Let’s start with what everyone wants to know — how will the updated advertising rule change advisor marketing?

 

There are three primary adjustments:

  • Advisors can now use client testimonials (provided they adhere to specific restrictions).

  • Advisors can now reference and promote third-party ratings (again, there are restrictions). 

  • Advisors have better guidance for how and when performance returns can be used in marketing (but hey, remember to look at the restrictions). 

 

Out of all the changes, the one that has been getting the most attention so far has been the use of client testimonials. And it’s for good reason, as it’s certainly the most drastic change from what has come before.

 

Testimonials are allowed, but advisors need to keep three things in mind:

  • Disclosures will be key. They have to be prominent and specifically state if the testimonial is a client and if they were paid. Truth be told, though, this doesn’t seem all that different from some of the disclosures you might see in various tv commercials (“Paid actors. Not real clients.”).

  • If someone is compensated more than $1,000 to provide a testimonial, there must be a written contract.

  • Generally, if someone has a criminal conviction or has received disciplinary action from the SEC, they can’t give testimonials.

 

While there are still some unknowns about how the updated advertising rules will be applied and monitored by the SEC, these restrictions are straightforward and give a clear sense of what advisors should do to begin using testimonials in their marketing.

 

The testimonial rule gets the attention, but updated guidance for performance returns may also be an advantage for advisors who see themselves as more portfolio managers than financial planners. 

 

When it comes to performance returns, advisors should be aware of these guidelines:

  • Gross performance can only be reported if net performance is shown alongside it.

  • Performance should include standard time periods like one year, three year, five year, and ten year. If any of those time periods don’t exist, since inception can substitute.

  • Any performance shown should be reasonably connected to the needs of the intended audience.

 

The updated performance guidelines are good for advisors who want to display their returns, but they’re even better for investors.

 

These guidelines standardize the way advisors can show performance, and that’s a good thing for consumers who need all the help they can get when trying to assess multiple advisors with an apples to apples comparison.

 


7 Marketing Guidelines to Keep in Mind 


 

In addition to the specific guidance given for testimonials, performance returns, and third-party ratings, the new rule also includes 7 specific general prohibitions.

 

Here they are, straight from the SEC itself:

 

  • Making an untrue statement of a material fact, or omitting a material fact necessary to make the statement made, in light of the circumstances under which it was made, not misleading;

  • Making a material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the Commission;

  • Including information that would reasonably be likely to cause an untrue or misleading implication or inference to be drawn concerning a material fact relating to the adviser;

  • Discussing any potential benefits without providing fair and balanced treatment of any associated material risks or limitations;

  • Referencing specific investment advice provided by the adviser that is not presented in a fair and balanced manner;

  • Including or excluding performance results, or presenting performance time periods, in a manner that is not fair and balanced; and

  • Including information that is otherwise materially misleading.

 

It might seem like the rule includes more restrictions than it does actual guidance for how to market your firm, but don’t see that as a bad thing. At its heart, the advertising rule is still designed to protect consumers first—and from a fiduciary perspective, there’s nothing better than that. 

 

While some might be more fearful of marketing their firms because of a fear of again straying from the guidelines, the new SEC advertising rule presents an opportunity for the advisors who truly put the best interests of their clients ahead of their own. 

 

By including client testimonials, your firm has a powerful new arrow in its marketing quiver. Any client who has seen their life positively impacted by your financial advice could be a candidate to tell their story, and make sure someone else gets the assistance they need to improve their life too.

 

If you’re ready to go deeper into the updated advertising rule, we’ve created a new ebook to help you see the ways you can leverage it to your advantage.

 


Get the full story.


 

Download our new ebook to learn more about the history of the SEC’s advertising rules and what steps you can take to modernize your firm’s marketing.

 

download now