The SEC's Ad Rule: New Strategies, New Risks

This article first appeared on Wealth Management on April 27th, 2021, and can be found here.

Advisors will have to take the good with the bad when it comes to using client testimonials—but they can be strategic.

The May 4 implementation of the SEC’s so-called Ad Rule will give financial advisors new marketing options with the ability to solicit client reviews and recommendations—and direct prospects to them.

While negative reviews from disgruntled clients on sites like Yelp, Google and Angi (formerly Angie’s List), have been the bane of advisors for years, they’ve been easy to ignore. Now, advisors’ ability to solicit positive testimonials for those sites and link to them in their marketing plans may bring added concern about complaints left there by disgruntled ex-clients.

That exposure could even prompt advisors to rethink how they “fire” or part ways with unhappy clients, according to industry observers and marketers.

Advisors will want to weigh the timing of interactions that could lead to bad reviews, said Samantha Russell, chief evangelist at FMG Suite’s Twenty Over Ten advisor-focused marketing firm. If advisors solicit reviews at a time when he or she is in the midst of terminating a client relationship, that could be a recipe for disaster.

Related: Five of Biggest Marketing Opportunities From the Updated SEC Ad Rule

That exposure could even prompt advisors to rethink how they “fire” or part ways with unhappy clients, according to industry observers and marketers.

“If you know that you're about to have a more contentious conversation with somebody, you can time up that campaign push so it doesn't fall close to the firing of a client,” she said. “I would definitely not want to send out a blanket email asking everyone to leave a review two hours after I had just had a heated discussion with someone.”

The new ad rule may prompt some advisors to be more careful about how they terminate client relationships to avoid acrimony altogether.

When Ryan Frailich, founder of planning-focused Deliberate Finances in New Orleans, cut ties with a client earlier this year, he said he clearly told the client why, refunded a portion of his fee and provided referrals to several other vetted advisors who might be a better match. It was less about avoiding a negative review than about being a professional and treating his client with respect, he said.

The forthcoming implementation of the ad rule would not have affected his decision process around terminating that client, he said. “If you have come to the conclusion that you and a client aren't the right fit to be working with one another, you shouldn't continue to do so out of fear of a negative publicity,” he said.

But the specter of a negative review does place a greater importance on client intake, to make sure clients are not surprised by what they are getting. “To me, the best way to mitigate this is on the front end: this is who I work with. This is how I work with them. These are the services I can provide and the services I don't provide,” Frailich said. “You'll have fewer issues with this if you don't take clients in the first place that aren't a good fit.”

“I don’t think the testimonial rule necessarily reduces the likelihood an advisor fires a client,” said Michael Kitces, head of planning strategy at Buckingham Strategic Partners and publisher of the Nerd’s Eye View. “It perhaps puts more pressure on the advisor to terminate the relationship gracefully.

“When terminating a client is done well, it’s not simply 'firing' them, but showing them a better path that’s a better fit for their needs and circumstances and referring them to another advisor who will serve them even better, which can be even more positive,” he added. Keeping a troublesome client is a “greater risk” than a bad review.

Another strategy for advisors worried about negative reviews could be to minimize them, said Max Schatzow, an attorney at Stark & Stark and the author of the investment advisor blog AdviserCounsel.

SEC guidelines around investment advisor marketing suggests “an adviser…include a disclaimer that the testimonial provided was not representative, and then provide a link to, or other means of accessing (such as oral directions to go to the relevant parts of an adviser’s website), all or a representative sample of the testimonials about the adviser.”

That leaves advisors with the option of prominently displaying positive reviews on his or her website, while hyperlinking to the third-party platform, which could include negative reviews.

“You're not going to advertise the negative review,” said Schatzow. “It's not going to be on your webpage. It's not going to be on your business card. It's going to be buried so far through hyperlinks and elsewhere.”

“I just don't think that a negative review on a click-through is that big of a marketing risk,” concluded Schatzow. “Assuming your business is otherwise good, and you've got plenty of other good reviews, it seems like a non-issue.”