Attracting New Clients as a Financial Advisor: What You Can and Can’t Do
There are more than 350,000 financial advisors in the US alone. How do you stand out from this enormous crowd? How will your future clients find you, and why should they choose you over all the others out there?
Testimonials from happy clients, that’s how.
Gathering and using testimonials has gotten easier over the past few years for financial professionals, but the financial industry remains regulated by several regulatory groups. The goal of all is to ensure compliance with rules, regulations, and ethics, protecting America’s investors by making sure the broker-dealer industry operates fairly and honestly. Regulatory requirements are in place to protect consumers and ensure fair practices within the industry.
Here are some key limitations to consider when collecting testimonials specific to the financial industry:
- Compliance with Financial Regulations: The financial industry is heavily regulated, and testimonials must adhere to specific rules set forth by regulatory bodies such as the Securities and Exchange Commission (SEC), and the Financial Industry Regulatory Authority (FINRA). These regulations aim to prevent false advertising, misleading claims, and protect investors.
- Prohibition of Misleading or Inaccurate Statements: Testimonials must not contain any misleading or inaccurate information. It is important to ensure that the testimonials accurately reflect the experiences of the clients and do not exaggerate investment results or make false claims about financial products or services.
- No Guarantees or Promises of Specific Outcomes: Testimonials should not guarantee or promise specific investment outcomes. Financial advisors and institutions are prohibited from providing assurances of future performance, as it is impossible to predict or guarantee investment results.
- Protection of Client Privacy and Confidentiality: Financial institutions must prioritize client privacy and confidentiality. When collecting testimonials, it is important to obtain consent from clients and ensure that personally identifiable information or sensitive financial details are not disclosed without proper authorization.
- Disclosure of Potential Conflicts of Interest: Financial professionals are required to disclose any potential conflicts of interest that may exist when collecting testimonials. This includes relationships with investment products, affiliations, or other factors that may influence the objectivity of the testimonial.
- Compliance with Advertising Standards: Testimonials should comply with general advertising standards, which include avoiding false, misleading, or exaggerated claims. Financial institutions must also ensure that testimonials do not violate any copyright or intellectual property rights.
- Review and Approval Processes: Financial institutions typically have review and approval processes in place to ensure that testimonials meet regulatory requirements. These processes may involve compliance officers or legal teams who assess the content of testimonials before they are used for marketing purposes.
Visiting this is greater detail, FINRA has specific rules surrounding testimonials in §2100: Communications with the Public. Testimonials fall into the category of retail communication which is defined by FINRA as: “…. any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period.”
There are two specific pieces moted about Testimonials in §6:
(A) If any testimonial in a communication concerns a technical aspect of investing, the person making the testimonial must have the knowledge and experience to form a valid opinion.
(B) Retail communications or correspondence providing any testimonial concerning the investment advice or investment performance of a member or its products must prominently disclose the following:
(i) The fact that the testimonial may not be representative of the experience of other customers.
(ii) The fact that the testimonial is no guarantee of future performance or success.
(iii) If more than $100 in value is paid for the testimonial, the fact that it is a paid testimonial.
The ability to garner testimonials improved in 2022, when the SEC made changes to the regulations, resulting in the allowance of testimonials with limitations. There’s a marketing rule that applies here, issued by the SEC.
According to the SEC, there are two definitions of what constitutes an advertisement, and it’s important to understand the nuance so as not to violate the code. The first is a traditional version, and the second includes verbiage surrounding solicitation:
“First, the definition includes any direct or indirect communication an investment adviser makes that: (i) offers the investment adviser’s investment advisory services with regard to securities to prospective clients or private fund investors, or (ii) offers new investment advisory services with regard to securities to current clients or private fund investors. The first prong of the definition excludes most one-on-one communications and contains certain other exclusions.
Second, the definition generally includes any endorsement or testimonial for which an adviser provides cash and non-cash compensation directly or indirectly (e.g., directed brokerage, awards or other prizes, and reduced advisory fees).”
Essentially, if it’s other than direct communication, one-on-one, then it’s considered an advertisement. This will include all of your social media marketing, websites, posts on LinkedIn and, of course, traditional forms of advertising. And, if it is deemed an advertisement, then the SEC marketing rule applies.
As a financial professional, under the SEC guidelines you can use testimonials so long as you are abiding by the rules of proper disclosure and oversight:
If the person providing the testimonial received compensation or had a conflict of interest, you’re required to disclose it, along with whether or not the individual providing the testimonial was a client.
Any promoter who is not an affiliate of the advisor or who earns more than $1,000 in compensation must enter into an agreement with the advisor.
Testimonials are also subject to disqualification if you use “bad actors” as per the SEC, so be sure to use your actual clients for your testimonials.
All of the regulations cited above are in place to ensure disclosure, transparency, authenticity and to limit claims of what an advisor might be able to achieve for another client. Be honest, use your actual clients, and remain within the guidelines and use testimonials in your marketing toolkit to find new clients.
If you do decide to use share.one for your video testimonial collection, please rest assured that we are well versed in what can and cannot be done and we will ensure that your recordings are compliant with the latest regulations. For more information on our services, please visit www.share.one/how-does-it-work
Disclaimer: This post is for general informational purposes and is not intended as legal or ethical advice. All practitioners and advisors are responsible for understanding the legal and ethical guidelines of the governing bodies for their industry and which apply to their situation.
Top Questions to Ask During a Testimonial
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