An Open Letter To SEC Chair Mary Jo White: Please Modernize The RIA Testimonial Rule So That Consumers Could Rely On The Web To Connect Them With The Best Advisors

Saturday, November 09, 2013 16:18
An Open Letter To SEC Chair Mary Jo White: Please Modernize The RIA Testimonial Rule So That Consumers Could Rely On The Web To Connect Them With The Best Advisors

Tags: client communications | client feedback | content marketing | investment advisors | registered investment advisors | regulation | sec | Social Media

Dear Mary Jo:

The Securities and Exchange Commission needs to modernize – or at the very least provide greater clarity -- about its rule prohibiting RIAs and IA reps from using anything approaching a testimonial in their advertising. I know you're pretty busy but please read through what I am saying because I have a good point.
The current rules on social media use by RIAs are stifling competition and preventing the best advisors from helping more consumers. I’m not a libertarian and I’m not invested in any political party’s agenda. But I do know about social media, financial advisors, and RIA compliance and I’m telling you that what you’re doing is bad for consumers and advisors.
Social media can connect consumers with the best investment advisors at a lower cost if the testimonial rule were updated to allow advisors to use “Likes,” star ratings, Google reviews, and LinkedIn endorsements and recommendations in their marketing materials and Form ADV.

This Website Is For Financial Professionals Only

Admittedly, there is a risk that, given the freedom to use crowd-sourced data in advertisiing, some RIAs might try to rig the system by engaging in deceptive Internet marketing practices to increase their Likes, star ratings and Linked recommendations and endorsements. But an advisor can use a phone to commit fraud and the SEC does not ban the use of the telephone by advisors. In fact, it doesn’t even require you to keep a record—much less a recording—of all client phone calls!
Regs supporting the Investment Advisers Act of 1940 have historically changed to accomodate new media and communication systems over the past seven decades, enabling advisors to communicate and advertise using fax machines, email, and websites. Social media is just another medium for communication. If advisor is hellbent on defrauding people, the mode of communication is not the cause.  
And if you’re really worried about an advisor gaming the system by generating fake reviews, recommendations or star ratings from non-existent people or tricking people into liking them, simply impose stiff penalties—like a lifetime ban from the investment advice business.
The SEC has been incredibly opaque about RIA use of social media and it's hurting consumers as well as the good, honest, hard-working professionals who would benefit most from increased transparency.
Fixing all this is pretty easy. Start by getting the agency to answer some very basic questions:
1.       Can RIAs and IA reps make a “Facebook” fan page for an RIA or IA rep?
2.       Can an RIA and IA Rep advertise how many fans or likes are accumulated?
3.       Can an RIA and IA rep make a fan page on Facebook for an idea or solution (i.e., an RIA or IA rep might post a fan page for Miami Beach Index Fund Investors, a charity event, or for Retirement Income Portfolio Solutions)?
4.       Can RIAs and IA reps show endorsements and recommendations on their LinkedIn profile page?
5.       Can RIAs advertise their Google Reviews and ratings on their websites and elsewhere? (Why not? Since they do not control what other people say about them, why no allow them to use crowd-sourced data in ads and Form ADV?)
6.       Are there some boilerplate disclosures you would like RIAs and IA reps to use when signing people up as connections or on their social media pages?
With great respect for your work and reputation, I ask you to consider helping the SEC get out of the way and allowing the transparency of the Web to connect the best advisors with consumers at better prices. 



Comments (2)

Hi Andy, I think this letter is a good starting point, but you (and others) will have an uphill battle to get anything to change in this realm. I believe that if there were an organized effort, using lobbyists and all the other ammunition one could muster, and if ALL of the financial services trade groups would participate, maybe there would be a chance to get something done here. One of the best points you make is in #5 above--in the last clause--we cannot control any of the bad stuff written about us, but at the same time we can't write anything positive. That is basic unfairness and arguably unconstitutional. Your last point about connecting the best advisors with the consuming public at the best price is the basis for your argument, and is certainly valid. However, I wonder what the large brokerage firms would do to overwhelm (and thereby negate somewhat) any positive comments made about independent RIAs. Their overpowering marketing advantage worries me a little. -Andrew F.
FamaFiduciary , November 11, 2013
An advisor's Google ratings and reviews, star-ratings on Facebook,and endorsements and recommendations on LinkedIn cannot be diminished by anything a giant firm does.

Your crowdsourced data -- recommendations, ratings, reviews, etc. -- is a public report card.

It's better than Consumer Reports because it is consumer reports!

Allowing crowd-sourced data to flow freely by updating the testimonial rule would tap the power of the Internet to publicize real truth about each individual advisor.

Nothing a competitor can do can change an advisor's ranking.

You earn the report card you deserve.

As long as a strong deterrent that guards against rigging crowd-sourced data, the best advisors would rise in Google's rankings.

The most credible advisors in a local community or serving a particular niche would be organized, indexed and searchable by Google and other search engines. That's ow the Web works, which is what makes it so incredibly powerful.

There is a danger of advisors being unfairly rated and berated by a disgruntled consumer who is a jerk. But instances like that are pretty rare in online ratings and any business or professional is entitled to have a bad review once in awhile. t happens, and people know that.

Advisors who adopt this very compelling and totally transparent approach to marketing should be prepared to live under the oppression of crowdsourcing, which will be fine if you always are trying to do the right thing.

A short answer is that the Web is assymetric -- a great equalizer that makes a tiny RIA as trustworthy as big as a Wall Street giant. Empowering RIAs to use customer ratings and reviews as a marketing tool would help make that clearer to consumers. As long as a particular RIA truly is provides better services and advice than a competing broker at a big Wall Street firm, that will come through on Google rankings and elsewhere on the Web.
agluck , November 11, 2013

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