In this article, we discuss testimonials for advisors, and more specifically, regulatory limitations placed on advisors that prevent using testimonials in advertising.
The SEC is considering whether to permit advisors to use client testimonials and endorsements in advisor advertising.
Being a Registered Investment Advisor (RIA) comes with a requirement to follow many regulations. An RIA’s compliance is typically monitored by organizations like SEC (Securities and Exchange Commission) and/or FINRA (Financial Industry Regulatory Authority, Inc.), along with a compliance officer within the RIA’s organization.
A main purpose of compliance is making sure that RIAs are acting the way they should, especially related to avoiding misleading clients or prospects. This is one of the main areas of focus of the rules, as it should be.
One rule that’s been in place for a long time is that RIAs are not allowed to use client testimonials or endorsements in advertising. This has become more and more challenging, as online services like Yelp and LinkedIn offer the ability to write a review of a person or company or service, often regardless of whether the business owner wants the review. Even social media sites like Facebook or Instagram can be used to search for others’ experiences with a specific service or product. However, in the area of RIAs, these online sites can create a problem since we are not permitted to use client testimonials as advertising. If someone writes a review on Yelp for Tree Fort Financial, even though I’m not curating that site or in control of that review in any way, is it still considered advertising? I do try to avoid these situations wherever possible to help keep Tree Fort Financial compliant.
The SEC is considering changing its rules to permit testimonials and endorsements in advertising. Here’s an article from Investment News that discusses the potential change.