How Advisors Can Use Client Testimonials Under New SEC Rule

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Advisors can start using client testimonials this year thanks to a recent marketing rule approved by the Securities and Exchange Commission, but they should proceed with caution and make certain they are following the rule’s requirements, according to industry legal experts who spoke during the recent Snappy Kraken webinar “What RIAs Need to Know About the New Marketing Rules.”

The one thing “most advisors are really going to love and take advantage of is the fact that you can actually request a testimonial from a client, get a favorable review and then advertise that review to generate business,” said Max L. Schatzow, an attorney with the law firm of Stark & Stark.

Many consumers, after all, consult such reviews to decide which business to use, he noted, saying: “These things really do matter, and the fact that you’re now able to take advantage of that is huge.”

Potential Trip-Ups

One thing that is a little unclear, however, is the theory of “entanglement and adoption,” he said, noting that if an advisor starts getting involved in the process, it starts to control the content. If you ask all your clients to say nice things on Google Reviews, you run the risk of becoming too closely linked to Google and it becomes “your advertisement,” he said.

Schatzow is hoping there will be more guidance from the SEC on that issue, he said. Until then, it is “probably a little bit too risky for some bigger firms to start actively asking for those kind of reviews from clients,” he said. “But I think you could certainly use testimonials when you ask your client privately” for reviews to be used in a testimonial, he told viewers.

Advisors also need to be cautious if they get a bad review from a client, he said. “Once you get a bad review, you sort of have an obligation to share it or at least highlight it in your advertising campaign” somehow, he warned.

What’s Changed?

Asked what exactly has changed with the new SEC rules, Leila Shaver, a lawyer who is founder of the law firm My RIA Lawyer and legal and compliance partner at Myriad Advisor Solutions, said with a laugh: “Everything.”

“Everyone wants that really happy client to be able to provide” testimonials such as a Google review, a Yelp review or to, in general, “write something down so they can post it on their website,” she said, adding: “You can now do it.”

Client testimonials have “been for the last several decades a fundamental part of growing your business” in any sector, so now “the SEC finally got into the 21st century” to allow RIAs to do it, she said.

“You can have a Google link that you send to your clients, have them post [it] on Google, [and do] the same thing with Yelp or Yahoo or any one of these platforms,” she noted. “If you want to create a place on your website where they can leave reviews — the same thing. Create a link and have them go post it.”