Imagine trying to explain a TikTok video to someone who had only ever seen a moving picture in a theater and in black and white, and you’ll get a little bit of an idea of why the new SEC marketing rule is something to be excited about.
The modernized guidelines went into effect last month after first being announced two years earlier in December 2020. The regulations had mostly gone unchanged since 1940, when only a few thousand U.S. households had even just one TV. Now advisors no longer have to lose sleep over gray areas due to technology advances, such as comments on a Facebook post.
However, while the new rule creates many opportunities for advisors to expand their marketing and communications and leverage today’s ever-changing tech to deploy those messages, many advisors are still a little confused on certain aspects and are wondering how this new rule affects their compliance program.
New SEC rules: The basics
The new SEC marketing rule allows advisors to use several tactics that were previously prohibited. The statements cannot be untrue or misleading and must be provided in a “fair and balanced” manner.
The three marketing tactics you can now use are:
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Testimonials and endorsements
By definition, testimonials are statements made by your actual clients, and endorsements are statements by non-clients. In order to use these, you must clearly disclose if the person giving the statement is a client and if they were compensated.
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Third-party ratings
The rule establishes that third-party ratings must be given by a person or company who provides that information as part of their regular business in order to use them in your marketing materials. An example of a third-party rating could be an industry rating for a firm or a Google listing star rating or even a Yelp review. Certain disclosures are required as well.
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Performance advertising
This one requires extra diligence since it comes with several caveats. For example, you cannot use gross performance in an ad unless it also presents net performance. If you include performance results, you must provide specific time periods. Again, you will need to maintain records to back up your claims.
Compliance and concern in your marketing
With so many complex rules, it could be easy to just throw up your arms in frustration and decide not to do any new marketing. That would be a mistake. It is important that advisors and firms of all sizes create a strategy to take advantage of the new rules. Here are three best practices to help you market while staying in compliance:
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Create a training program
Educate your staff about the new rules. Use everyday scenarios—for example, show them how they can use testimonials from actual clients. Many investors don’t understand numbers or portfolio performance, so testimonials that focus on an advisor’s ability to coach and be a reliable, trustworthy partner would be a great resource for your marketing. Teach your staff how to request, document, use, and disclose testimonials to stay compliant.
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Update policies and procedures
It’s possible that you may have turned off the ability for clients or visitors to even leave comments on social media, fearing that the SEC would see a positive comment as an endorsement or testimonial. Be sure to comb through all of your written policies and procedures and update them. You likely also have some unwritten rules you were all following as well. Ask your team about current processes and see if there are any places you can leverage the new rules for the better.
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Seek outside assistance
If you oversee your firm’s compliance policies and aren’t confident in enforcing the new rule, outsource compliance to a third party who can give you the confidence you need. You could also consult with a marketing agency that knows the financial services realm (and how to stay compliant) and can help you leverage the new rule.
The new marketing rule opens doors for advisors – but it also provides more opportunities for compliance errors. By doing your due diligence and implementing firm-wide policies and procedures, your firm can use new guidelines to advance your marketing and growth in 2023.
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