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FMG Suite executive Susan Theder

Regulation and Compliance > Federal Regulation > SEC

How Advisors Can Get Ready for New SEC Marketing Rule  

By Jeff Berman

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What You Need to Know

  • Advisors preparing for the upcoming compliance date for the SEC Marketing Rule should start by laying a foundation to leverage social proof in their marketing, FMG Suite's Susan Theder says.
  • The first and most crucial item in that process should be to make use of the Google My Business tool, she says.
  • Advisors must also consult with their compliance departments to make sure they're adhering to established guidelines.

The Nov. 4 compliance date for the Securities and Exchange Commission’s new Marketing Rule is creeping up fast, clearing the way for advisors to use testimonials in their advertising and marketing.

Marketing and compliance experts on Tuesday offered their advice on how to comply with the rule — and how to make the most of newly available marketing channels.

As the SEC warned on Monday, when it released a Risk Alert, advisors may no longer choose to comply with the previous advertising and cash solicitation rules starting Nov. 4.

For starters, an advisory firm “needs to ensure they’ve familiarized themselves with the changes contained in the rule and have enacted policies and procedures reasonably designed to detect and prevent violations of the marketing rule,” according to Jason Vinsonhaler, RIA in a Box director of compliance.

“The SEC has released examination priorities for the rule, which include policies and procedures and books and records,” he said, adding the regulator will also be “reviewing substantiation information for statements made in advertising.”

He added that “performance advertising remains an area of focus as well.”

Social Proof

“Advisors preparing for the upcoming compliance date for the SEC Marketing Rule should start by laying a foundation to leverage social proof — reviews and testimonials — in their marketing,” according to Susan Theder, chief marketing and experience officer at advisor marketing firm FMG Suite.

“The first and most important item in that process should be to claim and set up their Google My Business” account, she told ThinkAdvisor on Tuesday. “This will give advisors a place to collect, reply to, and repurpose reviews. When advisors get a review, Google will send them an email alerting them, and it is important that they quickly enter a reply to each review.”

That is because “engagement with reviews, like social media, is critical and will also drive improved” search engine optimization results, she pointed out.

Second, she said, “they should think about and outline all the marketing channels and assets in which they can leverage their positive reviews.”

An advisor’s website is one “obvious channel, but other marketing assets such as slide decks, case studies, and blogs also provide a medium to promote this social proof,” she explained.

Third, advisors should also “think about ways in which they want to compliantly solicit/collect reviews,” she noted. “One method which is worth considering is simply incorporating messaging and a link into their email signatures and appropriate customer communications.”

Last, she said, video testimonials can be especially effective. “Advisors who wish to leverage video should identify clients who are willing to participate and ensure they mirror their ideal client persona,” she said.

“And, of course, before doing any of this, advisors need to consult with their compliance departments to understand their firm’s policies and procedures and ensure they adhere to the guidelines that have been established,” she added.

Justin Boatman, chief product officer at Riskalyze, agreed about the importance of advisors consulting with their company’s compliance departments.

“One of the broad themes of the Marketing Rule is the level of importance the SEC is placing on client engagement as a prerequisite to bringing investment material in front of clients,” he told ThinkAdvisor.

He added: “Advisors should, of course, consult their own compliance resources about the rule, but those who involve client inputs in their proposal processes and document their approach can rest easy knowing they’re doing right by their clients.”

Some Advisors Are Behind

“Right now, [advisors] should be working on reviewing all marketing and advertising pieces that will be in use on Nov. 4 to bring them into compliance with the new rule,” according to Amy Lynch, founder and president of FrontLine Compliance, who previously served as an SEC regulator.

“Written policies should be drafted already or almost completed and firms should make sure that the type of marketing materials utilized are covered in the policies,” she said Tuesday. “For example, if a firm uses hypothetical performance the policy must contain a section on the use of hypothetical performance and how it will be allowed, monitored, etc.”

Advisory firms also “need to make sure they have all the necessary support and backup for all performance data or other factual data shown in marketing or advertising,” she said. Each firm’s ADV Part 2A brochure “may need updating prior to November 4th if the firm uses promoters, so that should be reviewed as well,” she added.

However, “many advisers are behind the eight ball on this rule,” she warned. “That’s because there is more to it than just updating the firm marketing policy. Several areas need to be addressed and changes may need to be made in actual marketing materials and solicitation practices. This can be a heavy lift and if firms have not yet started then they are already behind.”

She predicted, however, that the SEC “won’t begin to enforce the rule via enforcement actions until well after the compliance date.”

Instead, “their first step will be to focus on the rule during exams of firms and issue deficiency letters to firms that need to do a better job,” she said, adding that it may be a year or more before the agency issues enforcement actions related to new components of the rule.

Navigating the New Rule

“Right now is the time to really dig in and make sure you understand the in’s and out’s” of what advisors can say under the new rule, Natalie Grasso, executive vice president and head of integrated communications at FiComm Partners, told ThinkAdvisor.

“Full transparency is key! No cherry picking only the good stuff,” she stressed. Advisors also need to be clear on “what materials and digital assets require disclosures (hint: everything) and what kind of processes and compliances might be necessary,” she said.

She noted that FiComm Partners developed a Step-By-Step Playbook that helps advisors navigate and prepare for the new rule.

“Once everything is in place, the real fun begins with the evolution of your marketing strategy,” she said. “From videos to quotes to graphics, the options are endless. And, as we all know, third-party validation matters. It provides an important perspective from those who have used your advice and services.”

This can also “be an effective way to communicate with all generations the value you bring to the marketplace,” she said, adding it is an “efficient, scalable way to market your business that may just help sway a prospect into contacting you.”

FiComm also provides some tips on navigating the new SEC Marketing Rule in a blog post.

One of those pointers about advisors’ marketing initiatives: “Every piece will need to comply with the Seven General Prohibitions and include the necessary disclosures in light of the type of advertisement utilized. The necessary disclosures requires both attention to the content of the disclosure and the format of the disclosure.”

The Very First Step

The very first thing that advisory firms should do, if they haven’t yet done so, is “determine what their policies and procedures are going to be,” according to Bill Simpson, Hearsay compliance principal.

“This may involve a tough internal conversation to determine what their approach will be to handling customer testimonials” and endorsements, he said Tuesday. “Then, they will need to update them to account for the new rule.”

Simpson predicted that the new rule will be a “primary focus for regulators” in 2023.

Pointing to the SEC’s Risk Alert on what the regulator will be looking for when conducting exams, he said: “Releasing a risk alert prior to the Office of Examinations doing audits is uncommon. My perspective is that … they’ve provided YEARS for advisors to get with the program. With only six weeks left until compliance date, this risk alert indicates that advisors need to have confidence in their ability to respond to the inevitable audits.”

Legal Experts Weigh In

Two partners at law firm Kleinberg Kaplan who are experts in SEC and regulatory issues also had some advice for advisors on Tuesday.

“Conduct an inventory of your marketing communications so that you can identify those which are ‘advertisements’ under the new rule,” Richard Guidice told ThinkAdvisor. “This will help to formulate a plan of attack, such as informing the updates that will need to be made to your compliance policies and procedures and identify compliance risk areas that will need to be addressed.”

Also, he noted, “once you identify your universe of advertisements, it will make it more efficient to work with counsel to help prepare appropriate disclaimers and updates to those materials so that they are in compliance.”

Advisory firms should “adopt and implement compliance policies and procedures that are reasonably designed to comply with the new rule,” he said. “This is not a one-size-fits-all approach, as different advisors will have different risks depending on their business. For example, advisors who do not use hypothetical performance or third-party ratings will not necessarily need to develop policies to address those items.”

Also, advisors should “work with counsel to review and amend agreements with placement agents, solicitors and other marketers (‘promoters’) for compliance with the new rule,” Christian Gloger said.

“For example,” Gloger added, “it is critical that advisors make sure that promoters are contractually obligated to provide the disclosures as required by the rule, and to obtain a representation from compensated promoters that they are not ‘disqualified’ under the rule.”

(Pictured: Susan Theder, chief marketing and experience officer at FMG Suite)

Jeff Berman

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