Financial advising is a balance of professional competence, trust, and interpersonal understanding, which makes personal testimonials particularly influential to those who are in the market for an advisor. So how do advisors make the most of this long-awaited opportunity?
As Bob Dylan once said, the times they are a-changin’. In an effort to modernize and consolidate Rule 206(4)-1, the Advertising Rule, and Rule 206(4)-3, the Solicitation Rule, of the Investment Advisers Act, the US Securities and Exchange Commission (SEC) is now allowing advisors to use testimonials and endorsements in their advertisements and marketing. Neither have been significantly updated since their implementation in 1961 (advertising) and 1979 (solicitation), so it’s better late than never for advisors across the country.
The reforms, first proposed in 2019 and adopted in December 2020, began taking effect May 4th and are meant to acknowledge the reality of the digital age. More specifically that, “the technology used for communications has advanced, the expectations of investors seeking advisory services have changed, and the profiles of the investment advisory industry have diversified” according to the SEC.[1] In addition to the updated definition of what qualifies as an advertisement and general advertising prohibitions, it also amends the Solicitation Rule, to “make refinements in scope, written agreement content, and disclosure requirements”.
It’s important to note that advisors must disclose whether or not the person giving the testimonial or endorsement is a client, as well as if they’re being compensated by the advisor (or on their behalf). Additionally, third-party ratings are permitted too, though also subjected to disclosures and other criteria. Regardless, this is huge news for advisors who, unlike their counterparts in other fields, have heretofore been unable to use any sort of testimonials which so proliferate nearly every other industry. Personal experience speaks volumes to potential new clients and customers across the board. Internet giants Yelp, Amazon, Google, and many other platforms include review systems as one of their key features in order to help customers select the best restaurants, products, and businesses. It’s not just talk, either; the Spiegel Research Center at Northwestern University found that not only do 95% of customers read reviews before making purchase, but “the purchase likelihood for a product with five reviews is 270% greater than the purchase likelihood of a product with no reviews.”[2]
Financial advising is a balance of professional competence, trust, and interpersonal understanding, which makes personal testimonials particularly influential to those who are in the market for an advisor. So how do advisors make the most of this long-awaited opportunity?
Social media is a key target for testimonial-based marketing, because it allows more robust, long-form storytelling that simply isn’t available through other methods like static print and digital ads, or even more engaging marketing on the television or radio. After all, the entire point is to connect people to one another, so it offers a unique opportunity for potential clients to really connect to the stories told by current clients. Take Humans of New York, for example; available on multiple platforms including on their website, Instagram, facebook, and beyond, HONY started as a photoblog to capture the images of New Yorkers. Creator Brandon Stanton began to include quotes and stories told by his subjects, and it’s now evolved into a visual storytelling platform that often raises money for charitable causes. The subjects featured are normal, everyday people, and the blog highlights the fact that we all have stories to tell. Though it doesn’t advertise any particular product (aside from books of the same content), the profiling method can help advisors curate a platform where potential customers can connect with current clients and see themselves reflected in their needs and struggles. Potential clients want to know that their future advisor is the one best suited to help them, and written testimonials, videos, and yes, even Yelp reviews, can help advisors spotlight their unique qualities and competencies, the human connections they’re making, and of course the financial and personal results.
[1] https://www.sec.gov/news/press-release/2020-334
[2] https://spiegel.medill.northwestern.edu/online-reviews/
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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