Some advisers got the jump on the Securities and Exchange Commission’s new investment adviser marketing rule, deploying it long before the upcoming November deadline. Turns out scores of your peers also answered those new Form ADV marketing questions that most firms won’t have to answer until next year, according to affiliate publication Regulatory Compliance Watch.
An RCW analysis of more than 120 advisers that have already answered these questions found every one of them indicated they will use testimonials (see the box below).
“I think I implemented these [new rules] within 30 days of the implementation date” in May of 2021, Kevin Crawford, CCO at JB Capital ($1.2B in AUM) in Wethersfield, Conn., tells RCW. “We were pretty ready right out of the gate because we saw how important” testimonials could be.
JB Capital’s website features a page full of client testimonials. “We have a really robust … approval process,” adds Crawford. All testimonials must be ratified by his department. For now, they will appear on the website and in a new brochure created for prospects.
“We make the disclosures right there on the testimonial,” including flagging whether the person is or isn’t a client, he continues (RCW, Dec. 2, 2021).
The firm will pay no compensation to gain a testimonial. “That opens up to a new level of risk” to give compensation, believes Crawford. Those providing a testimonial must authorize their use and compliance “will refresh that authorization” from time to time, Crawford says.
Other sources of testimonials may come from Facebook or LinkedIn posts about the firm, or e-mails sent in “with a nice comment. We may reach out to that client and ask them” if they’d like to submit a testimonial, he says.
Another example of a firm that appears to have hopped on the new rule is Bedel Financial Consulting ($1.8B in AUM) in Indianapolis. The firm’s website houses a long page showing off its awards with a banner that reads “Bedel Financial has been named among the largest financial planning firms in Indianapolis, and honored as one of the Best Places to Work in the state. And that was just this year!” The firm didn’t return RCW’s inquiries.
But Sam Puathasnanon did. He’s GC/CCO at HCR Wealth Advisors ($1.4B in AUM) in Los Angeles. His firm also answered those Form ADV marketing questions, including signaling it will use both testimonials and endorsements. It should be only a matter of weeks before the firm showcases its first testimonials after spending one year getting ready.
“We’re working with a marketing firm to put these testimonials together,” he says. Most will be written and come from long-time clients although a couple may be made into videos.
Puathasnanon worked with a compliance consultant and also has staged weekly meetings with firm reps to talk about the new ad rule (RCW, July 28, 2022). Like other firms approached by RCW, HCR will not offer any compensation for testimonials because it “would potentially undermine the effectiveness or the credibility of the testimonial,” says Puathasnanon.
As part of the approval process, “I have to see all of the testimonials before they are released,” he continues.
A CCO at another advisory firm that has begun using testimonials would talk with us only if we agreed not to identify him or his firm. It began deploying testimonials in 2021, when early adopters could have put the new rule in place as long as they complied with the entire thing.
Going easy in the beginning
The firm wished to go gangbusters with testimonials but the CCO successfully persuaded it to curtail their use—at least in the beginning. They’re limited to materials reps can hand to prospects but the firm’s thinking about expanding their use to the adviser’s social media sites.
Again, no cash or non-cash compensation changes hands in exchange for a testimonial. Instead, reps can bring up the subject with their clients. Any testimonial would have to be approved by the CCO, with compliance adding the necessary disclosures (no payment given, person is a client, and noting any conflicts, if present).
Compliance keeps records of all testimonials and their approvals. The CCO will use his e-mail reviews to monitor if reps are communicating with clients about exchanging compensation for a testimonial. Compliance will also periodically test to ensure marketing disclosures remain accurate.
Editor’s Note: Join Puathasnanon and a panel of other speakers during RCW’s free upcoming webinar, Last-minute Tips to Be Ready for the SEC’s New IA Ad Rule. It will be Tuesday, September 27, 2022 from 2-3 pm ET. Look for how to sign up soon at our website.
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Early numbers on use of ad rule
More than 120 advisers have already answered those Form ADV marketing questions (RCW, March 17, 2022), according to an RCW analysis of SEC data. Astonishingly, not one firm answered they would not be using testimonials.
Here are the percentages for the other Form ADV marketing questions based on firms that answered each question: