The SEC Marketing Rule Kicks In Today. Are Financial Advisors Ready?
Similarly, the new trading rules of the Securities and Exchange Commission represent a promising opportunity to introduce a common practice with serious compliance issues that have raised serious concerns in the industry.
“Advisors are overwhelmed by the complexity of the rules,” said Michael Kim, president of consulting firm and technology provider Assetmark. "They know they need to act, but many don't know where to start, which creates some fear."
The survey data confirms this. In June, the Investment Advisers Association released a study showing that SEC trading rules are the top concern for advisors for the second year in a row. 78 percent of respondents said advertising and marketing are "core" compliance issues in their field, citing important issues such as cybersecurity, climate change, and investing in ESG.
“In fact, the consultants are not even sure what to focus on because the rule changes are so obvious,” Kim said. “The expansion of the definition of advertising has raised a lot of doubts, especially now that it is less encompassing digital communications and social media.”
One of the key changes in the new rules concerns guidance on how consultants can use client testimonials and testimonials, as well as third party testimonials, to promote their business. The SEC describes its approach as policy-based and describes the rules that consultants must follow when using advertising and other marketing methods on social media, company websites, or printed brochures. Consultants may include selected performance information as long as it is presented directly and provides meaningful context.
Kim and others said that some of the changes in the new rules, such as provisions such as incentives and recalls, are very different from the past, requiring the company's compliance protocols to be updated.
But the SEC remembered this when it set the compliance date almost two years after the final rule was published. Craftsman Compliance Advisors have now provided helpful advice on how to respond to the rules, and the SEC itself has listed some potential issues and promised to conduct a series of reviews targeted at companies applying the rules.
Prime Capital Investment Advisors, a Barron's- rated RIA based in Overland Park, Kansas, used preparations for the effective date to change its policies and procedures and provide advisor training. “We feel we are well prepared,” said Anthony Woodward, the company's director of risk and compliance.
Tera McBride, chief marketing officer of Prime Capital, said the company wants to use third-party reviews and customer testimonials, which she sees as a "huge extension" of informal conversations between customers and their friends or colleagues. This is always an important part when consultants build their practice.
"This company has a history of success through referrals," says McBride. "We want to explore all the ways we can incorporate reviews and endorsements into our marketing mix."
Not all companies want to use the new rules. Megan Carpenter, CEO of FiComm Partners, a communications firm that published Marketing Compliance Guidelines, describes a different situation where some tech-savvy companies can use the rules to increase their online presence while others are more restrained.
“It seems to me that most traditional consultants sit on the sidelines and don't include third-party testimonials, endorsements, or reviews in their marketing mix,” says Carpenter.
I believe the "wait and see" approach stems from a misunderstanding of the power of Consumer Reports in how people make buying decisions today. "I've also heard a lot of complaints about potential negative reviews that point to a general misunderstanding of the importance of having a digital presence rather than owning it."
Robert Sophia of marketing consulting firm Snappy Kraken argues that early adopters that include recommendations, testimonials and reviews can gain a competitive edge over companies as most companies are oblivious to the prospect of new laws to improve their business. This is not true.
“Many studies show that using this type of social proof significantly improves click-through rates, page conversion rates, and response rates,” he says. "In general, consultants fall behind if they don't have a strategy for collecting them and then incorporating them into websites, landing pages, and marketing materials."
However, "15% of consultants would be surprised if they used the rules by the end of next year," he said.
One consulting firm that plans to add new exemptions to the trading rules is JL Smith Group, an Ohio-based independent advisory practice with RIA Prosperity Capital Advisors.
Matt Seitz, Chief Marketing Officer at JL Smith, describes the process of working with the company's Chief Compliance Officer to determine which legal aspects to focus on, update the company's compliance guidelines, and contact a training consultant to participate in the changes. The training comes in "a variety of formats," says Seitz, including the company's weekly consulting webinars and one-on-one sessions. The company has added a module on marketing principles to its annual training.
“We plan to incorporate testimonials and endorsements into our existing marketing campaigns to demonstrate our value and reinforce our brand,” Seitz said. “For me, this is an important part of the new law because it allows us to support our customers and partners by telling our story.”
The same goes for third-party reviews, which J.L. Smith says can help build a brand, generate leads, and even bring new talent into the business.
“Where I see third-party standards, it is important to hire new consultants and employees to our team,” he said. "People want to know they're joining a strong company with a loyal customer base."
Compliance experts stress that any company wishing to use the rules should provide ongoing training to consultants and prefer to keep things relatively simple.
“A firm’s compliance program is only as effective as the consultant’s ability to follow it through, and when it’s too complex or lacks communication, firms let their consultants fail,” says Alexandria McCarthy, director of marketing for asset management consultancy Skience. And the technology provider...
Many marketing rules are quite simple. For example, consultants are prohibited from making false statements or providing potential clients with material that could create a "false or misleading impression."
When reporting on the performance of investment strategies, the SEC encourages advisors to consider the information in context and to include net performance versus gross performance. Similarly, the SEC requires advisors to provide specific timelines when disclosing performance.
Seitz recommends including one-, three-, five-, and 10-year returns in your marketing materials, saying "they're all different." "It's important to note that consultants can't artificially choose when to present results," he said.
It is not yet clear how the SEC plans to audit and possibly take enforcement action against the company under trading rules. The U.S. Securities and Exchange Commission did not respond to a request for comment on the story, although it did tell the industry that there would be a focused rule-based review.
Mattson Fund CEO Mark Mattson, who implemented the new law (after recording over 20 hours of client video footage), outlined important steps his company will take before the law goes into effect, including reviewing its policies and procedures. and monitoring procedures.
“Not only do you need to rewrite procedures, but you need to change your process to review and track policies so that the SEC can assess whether you are following the documents,” Mattson said. "You must show how you have changed to comply with this directive."
When the SEC conducts company compliance audits, many advisors expect the reviews to have an educational component, and auditors to honestly examine a company's compliance efforts and provide feedback on what they can do. Great
Snappy Kraken's Sophia warns companies that want to use marketing rules to be aware of their compliance protocols. When the SEC issued a regulatory risk warning in September, it was interpreted as an industry message that compliance in this area is paramount.
“Basically they look like this: “Look what we are doing!” Sofia said. she said. "Because enforcement increases every year, and advisors who add credentials, endorsements, and reviews to their markets are easy to identify, advisors who don't do the right thing are at risk of being investigated by the SEC."
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