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This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
Unless you have completely tuned out industry news these past few months, you have heard about the SEC’s updated new “marketing rule.”
In short, the SEC updated decades-old regulations pertaining to a number of investment advisor advertising and client solicitation policies. One of the most thorough write-ups regarding the update I have come across was written by regulatory attorney Richard Chen and can be read here.
The initial hoopla, particularly over the expanded use of client testimonials, has been overdone.
Upon the official announcement of the rule, there was no shortage of articles written, webinars hosted, podcasts made, all to eagerly expand upon all the great new strategies advisors will now have available to them.
Updating guidelines written long before most advisors were even born is good. However, I am not convinced of the earth-shattering change this will bring to our profession. Yes, it’s an improvement…. but worthy of all the excitement it has generated?
Don’t call me a Debbie Downer. It is my pragmatic way to view things.
Let’s start with implementation.
Many advisors, particularly those still under a large broker/dealer (w/ corporate RIA), will not instantly – if ever – have access to all that the new rule permits. As with any regulation, there is 1) what the rule itself allows you to do or not, and 2) how your firm chooses to implement (or not) the available options.
No regulatory rule says an advisor cannot make YouTube-style explanatory videos to demonstrate their expertise and attract clients. However, most large broker/dealer firms do not allow their advisors to use such business-development strategies, as they have no reasonable way to supervise thousands of their advisors incorporating such approaches.
Just because the new rulemaking technically allows for expanded use of client testimonials, it is still to be determined how large broker/dealer and advisory firms will choose to implement the option.
On the other end of the spectrum are individual RIAs. As I often note, they have far more flexibility on how regulations are implemented within their respective firms. It is significantly easier to devise an appropriate compliance approach to something like client testimonials when there are only a handful of advisors involved, as opposed to 10,000+.
Even then, only time will tell how regulators ultimately react to certain strategies to implement the newfound flexibility. While the rule-makers attempted to address as many circumstances as they could envision, there will inevitably be interpretation involved, considering our ever-evolving industry. While some RIAs will be comfortable being on the forefront of this wave, others will take a wait-and-see approach.
Also, consider what will be the overall benefit of being able to use testimonials. Having the ability to use them is better than not. But I’m not convinced it will be as earth-shattering as some have made it out to be.
If you were already struggling to attract new clients to your practice, you have a much larger issue to address than whether to slap a few client testimonials on your website.
Further, client testimonials will at best only help you feed the top of your sales funnel. Just as with any other top-of-funnel strategies, unless you have an effective process to nurture those relationships and move them through your funnel into becoming a client, all the client testimonials in the world will not benefit your bottom line.
For firms that already have a compelling value proposition and an effective sales-funnel strategy, the ability to add client testimonials will be a net positive. For those firms, it will feed more gas into an already efficient engine. Without an engine in the first place, though, pouring gasoline accomplishes nothing.
I am not writing any of this to discourage anyone from the potential benefits of this new rulemaking. I believe we are in the early innings of this new game, and actual results may not live up to the initial hype.
Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
