Advice firms ‘champing at the bit’ over new advertising rule

As the dust settles around the SEC’s approval of a new advertising rule for investment advisers, the financial services industry is expressing the full spectrum of mixed reviews and still has more questions than answers.

“This is a potential game changer,” said Charles Sachs, chief investment officer at Kaufman Rossin Wealth.

The SEC's new advertising rule, which represents the first update in decades to advertising regulations first established in 1961, includes principles-based provisions that apply to more modern marketing techniques, including the use of social media and testimonials.

At Kaufman Rossin, for example, where a wealth management business is housed inside an accounting firm with 400 CPAs, Sachs sees a wide-open opportunity.

“Right now, everyone walks on eggshells because of the current rules, but we’ve got a large marketing department that could optimize the heck out of this new rule,” he said. “We’ve got a dozen very creative marketing folks that will be champing at the bit, but we’re waiting for more information before we move forward with a strategy.”

Even in a best-case scenario, the new rule is nearly two years from becoming official, so moving forward in any substantive way is a distant prospect. But that hasn’t dampened the early enthusiasm.

“It’s a step in the right direction, but it presents both opportunities and challenges,” said Mazi Bahadori, vice president of securities at Altruist, a digital investment platform for financial advisers.

While he recognizes the potential upside for advisers in being able to leverage things like testimonials and endorsements, Bahadori said it will be more nuanced than just knowing you can’t do something.

“If advisers are not careful, they could find themselves in hot water a lot easier than under the previous rule,” he said. “They’re broadening the scope of what advertising means and putting the onus on advisers to define policies and procedures that are appropriate for their business. Until it’s clear what they can and can’t do, those advisers that have the resources to experiment and try new things will do that, and others might be learning by example.”

Christine Lombardo, a partner at the law firm Morgan Lewis, acknowledged that despite the significance of the Securities and Exchange Commission's approval of a rule revision that was years in the making, it is still a long way from being official or clear.

The rule becomes official 60 days after it is published in the Federal Register, which will be sometime next month, and it takes effect 18 months after that.

That long runway, Lombardo said, is not by accident.

“Investment advisers, by and large, will have to assess their policy controls, procedures and how they interact with clients,” she said. “That’s the reason there’s such a long implementation period.”

Even though the rule technically won't take effect until at least 2022, Lombardo said she expects to see some regulatory leniency for advisers who start testing the waters with testimonials and other marketing efforts allowed in the new rule.

“If an adviser uses a testimonial today, I would be surprised if there is enforcement taken, and I would hope the SEC would make some kind of statement about that,” she said. “I fully expect there will be FAQs and additional guidance around this.”

In the meantime, much of the financial services industry is embracing the big-picture perspective that they will finally be able to market and compete for clients just like other professions.

“This means we can finally prove it,” said Ray Hennessey, president and chief executive of JConnelly, a public relations firm specializing in financial services.

“The irony of these rules is that advisers have been limited to showing how they’ve succeeded to get new clients,” Hennessey said. “The endorsement part of the rule has been kind of a head-scratcher, because we all know that in private, referrals are happening all the time.”

John Bovard, owner of Incline Wealth Advisors, isn't certain whether the ability to use endorsements will put small, sole practitioner firms like his at a disadvantage against larger conglomerates “that can afford to hire Brad Pitt to do a commercial.”

“I’m not a fan of paid celebrity endorsements,” he said. “Also, it looks like there will be a little more of a compliance challenge for me. The bigger firms have their own compliance teams, but that work will be a more tedious process for me.”

Jud Mackrill, chief marketing officer at Carson Group, agrees that there could be a sudden rush to sign celebrities for endorsements, even if he isn’t convinced that such endorsements appeal to potential clients.

“It will be interesting to see where it goes, particularly with referrals, because that will be an interesting dimension of the sales process,” he said.

In terms of Carson Group's plans for proceeding under the new rules, Mackrill said, “We will continue to double down on what we’ve been doing with SEO and search, while running alongside our compliance team.”

“We will follow the opportunity,” he added. “If the rules are more open for us to pursue it, we will pursue it.”

Megan Carpenter, chief executive at FiComm Partners, said that despite the temptation to celebrate potentially more flexible marketing rules for advisers, “future inspection of the disclosure requirements is required before we can fully understand the potential.”

“When you think about popular apps like Airbnb, Instacart or Nextdoor, it is clear how powerful peer reviews are to consumers,” she said. “Opening up the possibility for advisers to share similar reviews from their clients will make the profession more accessible to consumers, so long as the disclosures aren’t so onerous that they defeat the purpose of the review.”