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Advertising practices that can raise the hackles of regulators

Photos, staff plaudits and hypotheticals are still testimonials by any other name

Thursday, November 19, 2009 – 4:05 PM by Les Abromovitz
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Les Abromovitz: Not surprisingly, advisors' hypothetical case studies have happy endings.

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NCS Regulatory Compliance
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Top Executive: Mark Alcaide, COO/Partner




TJ Gilsenan

TJ Gilsenan

November 19, 2009 — 4:23 PM

Les – great column as always. I’d like to get your take on testimonials (or bad reviews for that matter) on websites outside the control of a financial advisor. Specifically I am referring to personal blogs, local search engines (like yelp.com) and even google maps listings. As an example this is a google maps page for Black Rock:

http://maps.google.com/maps?source=ig&hl=en&rlz=1G1GGLQ_ENUS305&=&q=financial%20planner%20nyc&um=1&ie=UTF-8&sa=N&tab=wl

As you can see, there is nothing stopping someone from writing a review visible to all who search for Black Rock. The page belongs to Google and Black Rock has no ability to edit the posts. The same applies to people’s blogs, facebook pages, twitter accounts, etc. In short, the web is turning opinions usually shared on the golf course in to public documents.

What happens when the examiners see that someone has write an unsolicited testimonial for ABC Wealth Management and posted it to their personal Facebook page?

[ note: this comment re-submitted by RIABiz Webmaster upon re-publishing of Les’s column ]

Bill Winterberg

Bill Winterberg

November 19, 2009 — 4:37 PM

@TJ Gilsenan
Fortunately, the IAA of 1940 is very clear regarding the scope of the testimonial prohibition. Rule 206(4)-1(a)(1) says it’s illegal for registered advisers “to publish, circulate, or distribute any advertisement” that refers to any kind of testimonial.

I am not an attorney, but I interpret this to govern all references to testimonials for which the adviser has control or influence.

A testimonial posted at a 3rd party review site (e.g. Angie’s List, Google Maps, Google Sidewiki) that is beyond the control or influence of an adviser would not, in my opinion, violate the rule.

However, if an adviser posts a link on the firm’s website to direct clients and prospects to the review website, I believe it violates the rule. Linking to the review may constitute circulation of the testimonial. The link to the review must be removed from the firm’s website in order to remain compliant with the Act.

Bill @ <a href="http://fppad.com">FPPad.com</a>

Jan Sackley

Jan Sackley

November 19, 2009 — 5:16 PM

Excellent article and a great reminder for those preparing material for their RIA.

Jan Sackley
Fiduciary Foresight
Risk and Regulatory Compliance Consultants
jan@fiduciaryforesight.com
Twitter@jansackley

Les Abromovitz

Les Abromovitz

November 19, 2009 — 6:22 PM
I appreciate all of your kind words about my column. I agree completely with Bill’s interpretation of the rule prohibiting testimonials. As Bill suggested, I expect that securities regulators will look at whether the adviser had control or influence over the publication, circulation or distribution of the testimonial. I also believe they will question whether the testimonial was truly unsolicited by the RIA. An SEC or state examiner might probe to determine if the adviser encouraged a friend or relative to post the favorable comment.

Les Abromovitz, National Compliance Services

John Cook

John Cook

September 23, 2010 — 1:01 PM

I am a reg. rep. and RIA for a small firm. I market only one product and that is a Hedge Fund, (seperate from my firm and unaffiliated) that I initially invested in back in 1994. Naturally, I have years of history and personal experience as an investor with the fund and I am a close friend of the manager. Those experiences are the reason I am currently marketing the fund today and I certainly share those experiences with potential investors. Does this situation pose any compliance issues, strictly regarding testimonials, that I should be aware of?

Les Abromovitz

Les Abromovitz

September 24, 2010 — 2:37 PM

Unfortunately, this approach seems to raise a number of compliance issues. A lot depends upon the types of marketing materials you are sending, including e-mails to various prospects. You may be engaging in performance advertising, which opens a can of worms.

You also need to document your due diligence in selecting this hedge fund from among other investments. As the IAR for an RIA, you must satisfy your fiduciary obligations to clients and prospective clients.

Les Abromovitz

Les Abromovitz

September 24, 2010 — 2:37 PM

Unfortunately, this approach seems to raise a number of compliance issues. A lot depends upon the types of marketing materials you are sending, including e-mails to various prospects. You may be engaging in performance advertising, which opens a can of worms.

You also need to document your due diligence in selecting this hedge fund from among other investments. As the IAR for an RIA, you must satisfy your fiduciary obligations to clients and prospective clients.

Alison Perrin

Alison Perrin

August 7, 2014 — 12:19 AM

So how can an advisor get their message out there in a big yet compliant way?

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