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Advertising With Testimonials And Endorsements Under The New SEC Marketing Rule

February 3, 2021 07:08 am 5 Comments CATEGORY: Regulation & Compliance

The Registered Investment Adviser was established by the Investment Advisers Act of 1940, with an explicitly stated intention of separating “bona fide investment counselors” from the “unscrupulous tipsters and touts" trying to just sell the next hot investment scheme. Accordingly, from its very start, a key pillar in the regulation of investment advisers has been various prohibitions against any form of marketing or advertising that might be deemed ‘misleading’ to the public about the investment adviser’s anticipated investment returns. Which in 1961 was formally codified into an advertising rule that explicitly prohibited RIAs from using any form of client testimonial, under the auspices that the results and returns of any one client wouldn’t necessarily be representative of what any/all kinds could expect in the future… and that therefore testimonials were inherently misleading and a danger to the public.

In the years since, though, the world of marketing and advertising has evolved greatly, as have the services of RIAs themselves. As financial advisors expand into financial planning services beyond just portfolio management and are judged on the quality of their service beyond just the literal steps of managing the portfolio itself, it becomes harder and harder for consumers to evaluate an advisor’s quality and expertise with respect to the full breadth of their services. For which one of the most straightforward ways to assess is simply to ask other clients what their experience has been – a common approach in most industries that has led to a bonanza of various third-party review sites, from Google My Business to Yelp and more… but has remained remarkably absent from the realm of financial advisors due to the ongoing prohibition against client testimonials!

But now, the SEC has announced a new marketing rule – it’s first substantive refresh in nearly 60 years – which will, for the first time, allow financial advisors to proactively use testimonials (from clients), endorsements (from non-clients), and highlight their own ratings on various third-party review sites. Which means, simply put, that as the SEC’s new marketing rule takes effect in the coming months, it’s a new dawn for financial advisor marketing.

Not surprisingly, though, the SEC is not granting carte blanche permission for RIAs to use testimonials and endorsements however they wish. Instead, the new rules provide both a series of 7 general prohibitions that still apply to testimonials and endorsements (e.g., that they not be untrue or misleading regarding any material facts), a series of specific requirements that apply to testimonials and endorsements, from new required disclosures to additional oversight and compliance obligations regarding both the RIA and the “promoter” for the RIA, and certain limitations on who can even be a promoter providing an endorsement or testimonial in the first place.

In addition, the SEC’s new marketing rule provides additional clarity about when and how RIAs can leverage various third-party rating and review sites (e.g., Yelp, or various ‘Top Advisor’ lists), including a due diligence obligation (to affirm that the reviews had equal opportunity to be favorable or unfavorable) and additional disclosure requirements regarding the criteria used to determine the rating or review and what it actually pertains to (e.g., explicitly disclosing that a “Top Advisor” ranking is based on AUM alone doesn’t necessarily speak to the quality of the advisor’s advice).

Notably, though, the new marketing rule and its permissiveness of testimonials, endorsements, and the use of third-party review sites are technically only for SEC-registered investment advisers. Those RIAs that are registered at the state level will still need to conform to their state’s own marketing rules, which may or may not incorporate (or be updated for) the SEC’s new rule going forward. And FINRA-registered brokers are ultimately still subject to FINRA’s own rules on advertising and communications (not the SEC’s rules for RIAs).

Nonetheless, the reality is that the SEC’s new marketing rule represents a dramatic shift in the regulatory environment for RIAs when it comes to marketing and a recognition that when the business of advice goes far beyond just investment returns, testimonials and endorsements – and more generally, the perspective from those who have actually paid for and used the adviser’s services – can be an effective way to communicate the value the adviser brings to the marketplace. Albeit with the kind of (very reasonable) disclosures and compliance oversight that would still be expected to ensure that the adviser’s marketing is still reasonable and not misleading about the financial advisor’s services!

#FASuccess Ep 214: Building A Premium Advice Service By Niching With Ultra-High Net Worth Divorcees, With Olivia Summerhill

February 2, 2021 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 214th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Olivia Summerhill. Olivia is the founder of Summerhill Wealth, an independent RIA based near Seattle that exclusively works with women who want help adjusting to and maintaining their standard of living after a divorce. What's unique about Olivia, though, is the way she's focused her practice on a particular segment of ultra-high-net-worth divorcees allowing her to set her fees at $20,000 for an engagement, and then commit to working with no more than five active clients at any particular time.

In this episode, we talk in-depth about how Olivia crafted a niche of working with divorcees, how she leverages the expertise of her CDFA designation to work with divorce mediators and collaborative divorce attorneys, the way Olivia developed her unique pricing model and found the confidence to charge $20,000 for her services, and the depth of hand-holding services she provides to her clients after they complete the divorce process. From helping them set up credit cards in their own name to helping them buy a house on their own for the very first time.

We also talk about how Olivia has been able to find and attract ultra-high-net-worth clients with upwards of $100 million in net worth. From the way Olivia has built networks of affiliated professionals who themselves are sought out by ultra-high-net-worth clients as a way to first connect with them. The philanthropic and other organizations that Olivia joins and gets involved with in order to meet the professionals that work with that type of clientele. And why it's so crucial to understand that professionals serving the most affluent clients aren't necessarily looking for reciprocal referrals, but instead are focused on their own role as gatekeepers for their clients who are trying to identify truly trustworthy professionals to work with.

And be certain to listen to the end, where Olivia shares her own path to taking the leap of entrepreneurialism that she never thought she'd take. The career coach who helped Olivia better identify her own natural talents and find her own confidence. Olivia's unique 'informational interviews' approach that she takes to everything from networking for new clients to finding the firms and professionals she wants to work with herself. And why Olivia decided that the best path forward was to keep her firm focused on this niche from its day-one launch.

So whether you’re interested in learning more about why Olivia decided to obtain her CDFA designation, how she builds her network of trusted professionals, or why she decided to provide a high-touch service at a premium fee for a limited number of clients, then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial #AdvisorTech (February 2021)

February 1, 2021 07:05 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the February 2021 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the big news that Walmart has partnered with Ribbit Capital (one of the FinTech VC firms that backed Robinhood) to begin creating its own FinTech solutions for Walmart customers and employees… which would instantly create one of the largest distribution platforms for a FinTech solution (as Walmart reaches nearly 40% of all Americans on a weekly basis!) and also a Financial Wellness platform (as the world’s largest private employer). Yet the reality is that, as the world’s largest superstore, Walmart is arguably well positioned to become a financial products superstore as well – taking a page from the playbook of Sears, the 20th-century retailer that expanded into financial services and, in the process, spawned Allstate Insurance and the Discover card – though that still doesn’t mean that Walmart will necessarily want to enter the far-more-challenging-to-scale services business of financial advice itself.

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

- Former Vanguard CEO McNabb joins the Altruist advisory board, signaling that it’s not just RIAs themselves but also asset managers that would like to see a breakup of the current RIA custodial oligopoly

- Milemarker launches a new “Integration-as-a-Service” as AdvisorTech integration fatigue hits new depths even as cross-platform integration becomes more essential than ever

- DPL raises $26M of private equity capital to scale its new fee-based annuity platform for RIAs

- MaxMyInterest tries to expand the reach of its cash management solution for advisors not by integrating with their investment platform but via Redtail’s CRM instead

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

- Focus Financial launches its own cash management solution in partnership with Orion and competing with the RIA custodians its partner firms use

- National Guardian Life acquires Everplans as more insurers look to acquisitions as the means to facilitate their own digital transformations and overcome their Innovator’s Dilemma

- Chalice Network launches a new “Certified FinTech Advisor” designation for financial services enterprise executives trying to get up to speed in the world of Advisor FinTech

- Financial personality assessment tools are on the rise as client profiling goes beyond “just” risk tolerance to a wider range of client financial behaviors that advisors may be able to help (or, alternatively, want to screen for!)

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (Jan 30-31)

January 29, 2021 02:59 pm 4 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a helpful explainer of what, exactly, is going on with GameStop and a few other high-flying stocks that have captured industry headlines and media headlines this week with a combination of "short squeeze" and "gamma squeeze" that, driven by a stampede of Reddit users, may ultimately become known as the first "crowd squeeze" (though in the end, it doesn't appear to signal any kind of breakdown in markets themselves, but is simply a modern example of a type of investor squeeze that has been known and observed in markets for decades).

Also in the news this week are a number of other notable industry headlines, including:

Service complaints are up at both Schwab and TD Ameritrade, not as a result of the merger integration itself (which has yet to even substantively begin), but a combination of post-merger talent drain from TD Ameritrade and coronavirus remote-work challenges for Schwab, amidst what is still an ongoing bull market in the creation and growth of the RIA channel
Fiduciary advocates call for SEC Commissioner nominee Gary Gensler to consider renaming Regulation "Best Interest" to "New Suitability" instead

From there, we have several articles around marketing communications:

Why closing prospective clients is all about identifying the triggering events that also cause them to take action (and not just providing them information about the advisor's services and trying to convince them of the value)
How one-sentence emails can be effective for moving a prospect to action (or at least clarifying what it will take to do so)
Why it may help to think about marketing strategies in terms of the "minimum effective dose" it takes to actually make an impact

We've also included a number of practice management articles with a focus on hiring in particular:

Why it's not a good idea to rely on resumes and instead focus on asking for real work samples
The problems with relying on job interviews and why at the least interviews should be based on a series of standardized and structured questions
How the best hiring practices don't rely on using creative or unique interview questions and instead are simply based on leveraging a repeatable process that makes it easiest to really compare job candidates on their actual job skills and whether they possess the required job traits to be successful in the role

We wrap up with three final articles, all around the theme of work-from-home versus office environments, as the COVID-19 vaccine continues to roll out:

Why coffeehouses are known for being a good creative space despite (and in fact, because of) their distractions and external stimuli
How the future of office space is likely to be a blend of "core" in-person office hours for team meetings and collaboration, and work-from-home space for focus work
The rise of video-game-based work environments where co-workers interact with avatars in a game environment to better promote interpersonal interaction!

Enjoy the 'light' reading!

Kitces & Carl Ep 52: Are Advisor Websites Being Asked To Do Too Much To Grow The Business?

January 28, 2021 07:02 am 3 Comments CATEGORY: Kitces & Carl Podcast

Over the past several years, the technological capability for financial advisors to implement dynamic, interactive websites has evolved dramatically. Gone are the days of needing to publish static brochure-style webpages with images of lighthouses, compasses, and winding roads, and instead, advisors are able to publish robust portals that allow them to share content that demonstrates their expertise, provide information about the advisor(s) and their team, communicate directly with those they hope to serve, share the details of their pricing and the value they provide, and (if everything goes to plan) have visitors become a lead or even outright book an appointment. Yet the end result is that the advisor’s website becomes a sort of Swiss Army knife… chock full of little tools that can do a lot but don’t necessarily work nearly as well as a tool with a singular purpose. Which, in turn, raises the question: Are advisors asking their websites to do too much?

In this our 52^nd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the one important thing that all advisor websites should do, ways to create awareness and become relevant to a specific audience over time, and why some advisors have unrealistic expectations from their website.

At its core, the key to marketing success as a financial advisor is learning how to solve the specific problems of a specific group of people better than anyone else (rather than trying to be ‘everything to everyone’, and in the process, not actually being especially relevant to anyone). Because having a clear focus on a clear target market niche clientele allows the advisor to differentiate themselves in a crowded and competitive marketplace, by being able to clearly stand out to the clients they are best able to serve. Which also means moving away from having a website that tries to be everything to every visitor, and instead simply gives a clear statement about who they serve… and an obvious next step for those prospects to actually move forward with the advisor.

Which, in almost every instance, isn’t going to be a newly minted client deciding to hand over their life savings. Because, outside of referrals who are doing their last bit of due diligence before reaching out, most visitors to a website simply aren’t ready to do business with an advisor upon their first visit.

Instead, by simplifying a website’s design and ‘just’ having a well-defined audience and clear next step, advisors can build a targeted mailing list that they can use to share out relevant and actionable content, so that when someone who’s been on that list realizes they have a problem that needs solving, they will remember that the advisor who serves ‘people just like them’. In other words, an advisor's website should have one purpose, and that’s to gain permission to communicate with a visitor again. And use those subsequent communications to build the trust relationship necessary to actually do business with them whenever they are ready.

Ultimately, the key takeaway is that advisors should shift their mindset around what their websites are meant to do, and recognize that it’s extremely rare that a first-time visitor has arrived ready to do business. And that, unless it’s clear who the advisor serves and what the next step is, the odds are that all those first-time visitors will also be last-time visitors as well (even if they are exactly who the advisor serves in the first place) unless there’s a simple way (and a reason) for them to give their permission (by sharing their email address) to hear from the advisor again. While advisors who can find a way to stay in front of people in the future after they come across the advisor’s website once have at least a fighting chance of being top of mind when that one-time visitor eventually needs to actually hire a financial advisor!

Dave Ramsey’s Behavioral Advice Ingenuity To Help People Make Better Financial Decisions

January 27, 2021 09:43 am 22 Comments CATEGORY: Financial Psychology

Dave Ramsey has hosted the popular “Dave Ramsey Show” radio program since 1992 and founded Financial Peace University in 1994. Since then, he has helped millions of people with personal money management issues and has authored several best-selling books. Despite his popularity, though, many financial advisors have criticized the investment and debt management advice Ramsey frequently gives his listeners and readers. And while some of the advice that Dave Ramsey has given (e.g., assuming a 12% stock return, endorsing the debt snowball method of reducing overall debt, and encouraging 8% retirement distributions) may not result in optimal outcomes from a strictly technical perspective, the reality is that Ramsey’s advice has effectively helped millions of individuals and families reduce their debt, manage their money responsibly, and get on track to establish good financial habits.

For instance, while most advisors would agree that Dave Ramsey’s 12% return assumption for stock market investors is an alarmingly high return assumption, the reality is that using a high return assumption helps clarify the power of compound interest and the magnitude of potential wealth that can accumulate when new investors start saving early. In other words, the more compounding you see yourself missing out on, the more “FOMO” (Fear Of Missing Out) motivation it can inspire… which in practice, has been an effective motivator for many of Ramsey’s followers to start developing good savings habits!

Similarly, Ramsey’s advice to use the ‘debt snowball’ method – which advocates paying down one’s smallest debts first (in contrast to debts with the highest interest rates) as a means to tackle personal debt – is also under frequent attack. Yet while there’s no question that mathematically, paying off loans with the highest interest rates first is the most financially efficient method of debt reduction, borrowers who feel overwhelmed by debt are often more motivated to stick to a debt paydown plan when they experience the small psychological victories of eradicating their debt one at a time. Which means the most psychologically motivating approach really is to tackle the smallest debt first – actually pay it down successfully – changing one’s self-image to someone who can successfully tackle the rest of their (higher-interest) debt, too.

And many financial advisors, especially those who observe Bill Bengen’s 4% Safe Withdrawal Rate rule as the established norm, have also criticized Dave Ramsey’s 8% retirement distributions as dangerously high. However, while an 8% withdrawal rate is high, it is not necessarily as catastrophic as most advisors would suggest, given both the reality that many retirees can and do adjust their spending later if it becomes necessary… and that in practice, most retirees reduce their spending in the later years, anyway. Furthermore, higher withdrawal rates can be rational when we account for a retiree being willing to take some risk of running out of money, particularly when they have some guaranteed income, like Social Security, to provide a spending floor. And in practice, particularly for the audience that Ramsey is trying to reach, which may include individuals who got into debt trouble or started saving at a later point in life, a 4% withdrawal rate necessitates so much in retirement savings that it may simply feel unachievable for many – which, again, could de-motivate them from retiring (or saving) at all – while an 8% withdrawal rate target may feel like the goal is more achievable… which, again, helps them to actually follow through and take positive steps that improve their financial situation!

Ultimately, the key point is that even though Dave Ramsey may draw a lot of criticism from financial advisors who analyze his recommendations from a mathematical and technical perspective, he is very effective in helping a large number of people to change their financial behavior for the better, particularly those who need to get started on a substantively different path than the problematic one they are currently on (and may feel stuck on). His ability to help people modify their behavior may not rely on optimal advice from a technical standpoint but, notably, being ‘right’ isn’t necessarily always the most important factor for motivating and encouraging people to take the first major step of change in the first place. And so from a behavioral change perspective, there is quite a bit of ingenuity within Dave Ramsey’s advice (and the systems he has created to deliver that advice) that advisors may want to reflect on when helping their own clients change their behavior for the better!