Unlike politicians, advisors can't walk back false claims
It may be flip-flopping season on the campaign trail but RIAs must be careful to stick to one regulatory story
Aldous Huxley once said, “The only completely consistent people are the dead.” By that criterion, politicians are very much alive these days on the campaign trail as they backtrack, flip-flop and walk back statements that blew up in their faces. It’s a good reminder to investment advisors of how important it is to be consistent in advisory agreements, advertisements, social media and Form ADV disclosure brochures.
Policies and procedures are the operator’s manual for an advisory firm. They help to ensure that members of the firm act compliantly and ethically in their dealings with clients and prospects. Sometimes, however, such policies and procedures are contradictory.
For example, an advisor’s advertising policies and procedures may be inconsistent with the firm’s social media policies. Since social media is often used to advertise the firm’s service, those kinds of inconsistencies can cause compliance problems. See: Advertising practices that can raise the hackles of regulators.
For instance, a firm should have social media policies and procedures that stipulate who is permitted to use social networking for business purposes. All of those posts should be pre-approved by the firm’s chief compliance officer or a designee. This process helps to avoid situations in which a member of the firm distributes inconsistent or noncompliant information using social media. See: Seven things advisors need to know about social media.
Websites are often a prospective client’s first introduction to an advisor, but they may contain information that conflicts with other documents. As an example, fees are sometimes discussed on an advisor’s website, and they might be inconsistent with the firm’s advisory agreements and its disclosure brochure. See: Advisor newsletters: Compliance-wise, all news may not be fit to print.
Information on an advisor’s website sometimes contradicts the firm’s Facebook profile. If an advisor’s website refers to assets under management, the AUM should be consistent with information found in the firm’s Form ADV and on its social media sites.
Biographical information should also be consistent. On many occasions, advisors’ websites contain inconsistent statements about partners’ experience and how many years they have been in business. In almost every instance, the website bios had not been updated, causing them to be inconsistent with more recent materials. There is also a risk that investment advisor representatives’ LinkedIn profiles are not aligned with other biographical information. See: Lost in limbo: How and why compliance officers can seem to thwart RIA marketing efforts.
Occasionally, advisors are inconsistent in how they identify the firm, which can be confusing to prospective clients. If the name of the firm is John Doe Investment Advisors and goes by “JDIA,” stick with that abbreviation after the first reference to it. It is not unusual to see a firm referred to on one website page by its full name, John Doe on another, or JDIA on a third.
Innocent mistakes can be costly
Inconsistent and inaccurate marketing materials violate advisor advertising rules, which prohibit advertisements that are false and misleading in any way. Some marketing materials are inherently inconsistent. A newspaper article about an RIA stated that the firm did not advertise. The firm then sent that article with a marketing package to prospects, which contradicted the statement about the firm not advertising. Another advisor wanted to run an advertisement, stating that almost all of its new clients come to the firm through referrals from existing clients.
It is the CCO’s job to make certain that website content, social media, disclosure brochures, and advisory agreements are current and consistent. When content is not consistent, it may be viewed as misleading by securities examiners, even if these were innocent mistakes.
_Les Abromovitz, an attorney, can be reached at NCS by calling 561-330-7645, Ext. 213, or by e-mailing him at email@example.com. Les is the author of THE INVESTMENT ADVISOR’S COMPLIANCE GUIDE, which was published in March 2012 by the National Underwriter Company, a division of Summit Business Media. The book is available at https://www.nationalunderwriter.com/the-investment-advisor-s-compliance-guide-2.html. _
NCS Regulatory Compliance
Top Executive: Mark Alcaide, COO/Partner