With RIAs gaining the right to use client testimonials in their marketing, the increasing importance of online reviews may not be getting enough attention.
Since financial advisors and firms should now expect to be Googled by any prospect, their reviews on the search engine or similar databases such as Yelp loom at least as large in any client decision as the strictly regulated testimonials under the SEC’s new RIA marketing
The new rules can be fraught as there is some ambiguity and the potential for misuse. For example, regulators warn that any reviews by advisors and employees pretending to be happy clients are subject to fraud rules, and negative feedback could be part of any investigation. With the compliance date of the SEC testimonial rule slated for November 2022, some advisors say the inability of regulated RIAs to share online reviews on their websites or in marketing campaigns allows unregistered individuals who use those materials an unfair advantage.
Even after the first update to RIA advertising rules in more than 60 years, the “unscrupulous individuals” posing as financial educators or experts without any formal qualifications can leverage their online presence much more easily, said Andre Jean-Pierre of Aces Advisors.
“In today's day and age, the first thing that anyone does in regards to any product or service is they look at reviews,” said Jean-Pierre, who
Over the past decade, online searches have grown more important to clients researching financial professionals. In 2012, only 14% of investors polled as part of an SEC financial literacy
It’s no wonder, then, that financial advisors have evolved in their approaches to online reviews. When Gerber Kawasaki Wealth & Investment Management received its first review on Yelp, the firm requested unsuccessfully to have it taken down based on the prohibition against testimonials, Danilo Kawasaki, the co-founder of the Santa Monica-based RIA, said in an email. Now, Yelp is “an important piece of our overall marketing,” Kawasaki said.
“We worked with our compliance department at the time to make sure they knew we weren’t soliciting these testimonials,” he said. “They were happy clients who wanted to share their experiences with others, and Yelp couldn’t take any of these reviews down since they were all user-generated reviews.”
Kawasaki said that RIAs of any size should track and respond to their online reviews, although such posts wouldn’t be qualifying testimonials under the new rule’s requirements. Representatives for the SEC and FINRA didn’t respond to requests for interviews or further clarification about any potential impact to online reviews under the new rule.
Smaller practices overseen by the states instead of the SEC are still subject to their regulators’ specific rules, which continue to forbid the use of any testimonials, said Melanie Senter Lubin, the president of the North American Securities Administrators Association. She notes that, even though Google and Yelp reviews “aren’t really policed,” it’s a violation of anti-fraud rules for professionals selling products or services to leave reviews of themselves posing as clients.
“You have to look at it, because all of these things influence whether a customer wants to do business with that particular financial advisor,” Senter Lubin said.
If RIAs aim to use online reviews as testimonials under the new rule, they’ll need to display much more information than is present on a Google or Yelp review. For all testimonials, firms must state if the person giving the recommendation is a client, whether or not they have been paid for their comments and a list of their material conflicts of interest, the rule states. RIAs must also verify that there is no misleading information in the testimonial itself.
Commenters told the SEC that they were concerned the rule could “effectively eliminate an advisor’s ability to use testimonials if advisors had to present negative testimonials alongside positive ones, particularly in the context of online and social media platforms,” the text states.
“We do not believe that the general prohibition requires an adviser to present an equal number of negative testimonials alongside positive testimonials in an advertisement or balance endorsements with negative statements in order to avoid giving rise to a misleading inference,” according to the rule. “Rather, the general prohibition requires the adviser to consider the context and totality of information presented such that it would not reasonably be likely to cause any misleading implication or inference.”
The past and ongoing restrictions leave positive reviews that Jean-Pierre has picked up on LinkedIn out of bounds for any usage in his practice’s marketing, he pointed out. At the same time, BrokerCheck and news outlets display all kinds of alleged or proven wrongdoing. The rule “needs to be revisited as a whole,” he said, citing negative perceptions of the industry as a significant factor in the rise of unqualified advice online among potential clients.
“They haven't heard great things about the financial industry, so they feel that they have to do it on their own and they don't know how to do it,” Jean-Pierre said. “There's such a negative sentiment because the only thing they can find online are negative experiences, versus the millions and millions of positive experiences.”
On the other hand, Kawasaki applauds the SEC for at least revisiting advertising rules they last updated in 1961 and solicitation rules the regulator adopted in 1979.
“Providing advisors with clear guidelines in regards to testimonials and how to use them will ultimately benefit the public greatly as it adds more transparency to the process,” Kawasaki said. “Firms big or small should embrace online reviews. It is how people shop for products and services today. It starts with an online search, then they read reviews. If they like what they see, they will go to your website. If everything checks out, they will reach out for an appointment.”
