Compliance GPS: It may be a mistake to project too successful an image, especially in a post-Bernie Madoff world
Hint: photos of you on a yacht may not be what your clients are looking for right now
May 25, 2010 — 4:57 AM UTC by Les Abromovitz, Columnist
Elizabeth’s Note: Les raises some good questions about image in this column. He’s talking about marketing materials, but it serves RIAs well to consider their image in a broader context, too. In fact, this column made me think of a story told by a close family friend of mine. The friend, a retiree, kept his money at Smith Barney. Both he and his broker, a man in his 40s, belonged to the same golf club. A few years into their business relationship, my friend began noticing that every time he went to the club, no matter what time of day it was, his broker seemed to be there. The inference was obvious: the guy wasn’t working hard. When the market crashed, my friend severed the relationship and moved his money to a firm affiliated with his accountant. Whatever loyalty my friend might have felt had been squandered on the golf course.
There is a great Leon Russell song, sung more recently by Michael Bublé, which contains the following lyric: “I know your image of me is what I hope to be.” For some reason, I hear A Song for You and think it applies to registered investment advisers (RIAs). One explanation is that in my role as a compliance consultant, I often get an inside look at RIAs’ marketing materials, and I’m not always sure what image the firm is trying to cultivate. On too many occasions, it seems as if the adviser hasn’t given much thought to what image the firm wants to project and how that will resonate with prospective clients.
As RIAs craft their marketing message and advertisements, they must comply with Rule 206(4)-1 under the Investment Advisers Act of 1940. This is often a difficult path to navigate as RIAs attempt to distinguish their firm from thousands of other financial advisers without using marketing hype. Nevertheless, to avoid creating misleading ads or sending mixed marketing messages, RIAs should begin by paying particular attention to the image they want to project. Furthermore, advisers should identify the types of clients they aspire to attract and whether their image matches what those clients are looking for in an advisory firm.
Are your IARs and marketing materials the real deal?
Most investment adviser representatives (IARs) will argue that they are not trying to project an image. They claim to be the “real deal” and what you see is what you get. Ideally, these IARs do in fact possess the qualities that attracted clients to the firm.
For compliance purposes, image must be grounded in reality. Advisers should not attempt to project the image that they are miracle workers who will be successful in every market.
Many IARs want to be seen as someone who is always watching over the family’s money. One firm’s newsletter undercut that message by discussing the head of the firm’s extensive travel schedule. Some clients and prospective clients might worry that the adviser isn’t spending enough time managing their money.
A March 7, 2010 story in the online edition of Investment News discussed advisers who manage clients’ money from afar, whether from a sailboat or a vacation home. While clients might admire the IAR’s ability to combine work and play, some may wonder if their investments are receiving the adviser’s undivided attention.
IARs want to be viewed by clients as dependable, experienced, trustworthy, and knowledgeable. Unfortunately, saying you have these qualities does not necessarily make it so. Furthermore, RIAs should avoid making statements in advertisements that cannot be supported with demonstrable evidence. It is also a compliance mistake to put words in your clients’ mouths by advertising how they feel about you and your firm.
Is looking too successful a problem?
When marketing your advisory services, you already have one major hurdle to overcome. Certain prospective clients will think: “If you’re such a brilliant investor, how come you’re still working for a living?”
While some IARs want to present themselves as being extremely successful, potential clients may look at an adviser’s affluent lifestyle and wonder if he or she might need to dip into clients’ funds to sustain it. One adviser who is now in jail used a photo of himself and his attractive wife in front of an airplane, as well as matching luxury cars. In many cases, however, the image of you in front of your private plane won’t fly with the prospective clients you are trying to reach. In fact, a monogrammed shirt and cufflinks, or expensive jewelry, may be off-putting to some prospective clients.
Even your office influences how clients and prospective clients perceive you. Some will question how successful you are if your office is too shabby whereas others might view you as practical and prudent in your spending.
Erin Arvedlund’s book about the rise and fall of Bernie Madoff, Too Good to Be True, suggests that investors were attracted to him because of his hard-to-get mystique. Madoff projected the image that he was so successful, clients should be honored to give him their money and they dare not ask questions about his investment strategy. In the book, Robert Picard was quoted as saying, “There’s nothing that sounds more exclusive than saying you don’t need someone’s money. That was his shtick.”
How clients view you is the best advertisement
In the end, the best and most compliant way to advertise is word of mouth from satisfied clients. These clients like what they see in their dealings with the advisory firm from the adviser managing their account to the person who greets them at the door of a shabby or plush office. It will be even better if that positive image of you and your performance grows stronger every day, and clients sing your praises. Of course, I doubt they’ll sing as well as Michael Bublé.
Les Abromovitz is a senior consultant with National Compliance Services, Inc. Les, an attorney, is the author of Growing Within the Lines: The Investment Advertising and Marketing Compliance Guide (Available on Amazon.com or through NationalUnderwriterStore.com). He can be reached at 561-330-7645, Ext. 213, or at LAbromovitz@ncsonline.com.
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