Advisors can turn to client reviews to help repair their image

By Brian Thorp

While mechanics and financial advisors would not seem to have very much in common, a CFA Institute Trust Report published in 2020 found that the public’s trust levels for both these groups was poor.

While only 22% of retail investors said they highly trust mechanics, financial advisors scored just as poorly on trustworthiness among investors who don’t currently work with an advisor.

But there is a historic regulatory update that offers our industry an opportunity to reverse the mainstream narrative that advisors shouldn’t be trusted. And perhaps just as importantly, financial advisors gain a proven tool to accelerate the growth of their business.

After 60 years of prohibition, the Securities and Exchange Commission Marketing Rule now permits financial advisors to ask their clients for testimonials that can be published and promoted on advisor websites and online review platforms when accompanied by proper disclosures.

A silver lining found in the CFA report is that most retail investors who do work with a financial advisor believe their advisors are trustworthy. Which means, as reviews of financial advisors begin to proliferate online, the voices of millions of satisfied clients finally will be heard.

Consumers preparing to hire a financial advisor will gain insights into the authentic experiences shared by advisors’ clients to help them make more informed and educated hiring decisions.

And positive reviews accelerate the trust-building process, resulting in more consumers scheduling introductory calls with advisors, and a higher conversion ratio of prospects becoming clients.

Before financial advisors can get started with online reviews, it’s important to understand the regulatory landscape and prerequisites. Financial advisors licensed as registered representatives of broker-dealers must satisfy the Financial Industry Regulatory Authority requirements prescribed for soliciting and promoting testimonials, along with adherence to firm policies and procedures. And investment advisor representatives of registered investment advisors first must ensure compliance with the new SEC Marketing Rule prior to its Nov. 4 compliance deadline.

Although some differences exist within FINRA and SEC rules for soliciting and promoting testimonials, the good news is that advisors will find compliance requirements to be manageable, even when those advisors are dually registered.

If you’re a financial advisor interested in getting started with online reviews, it’s important to consult with your compliance team for their advice and guidance. When you do, you’re likely to find this topic is top of mind, as many firms across the industry are actively preparing policies and procedures for advisors to follow.

Once you have the green light from compliance, you’re likely to be told the next step involves sending an email to all of your current clients, simultaneously inviting them to write a review.

This is because the SEC makes it clear in the new marketing rule they expect advisors to avoid cherry-picking who they invite to write a review.

Beyond cherry-picking concerns, the SEC also wants to ensure that published reviews include accompanying disclosures to help prospective clients learn whether the person who wrote the review:

» Is a current client, former client or non-client (e.g., acquaintance, center of influence).

» Was compensated for the review (including non-cash compensation such as gift cards or dinner).

» Has any conflicts of interest that could influence what they write in their review.

Accordingly, your compliance team may require that you only invite clients to write reviews on platforms designed to display the required disclosures when their review is published.
Although general online review websites such as Google and Yelp may be popular among consumers, these platforms were not designed to accommodate SEC or FINRA requirements.

Instead, you may be instructed to collect and display testimonials only on your own website where the required disclosures can be added, or on online review platforms specifically designed for compliance with the SEC Marketing Rule.

Beyond the disclosure requirements prescribed in the SEC Marketing Rule, registered representatives should also ensure the following disclosures are present for compliance with FINRA Rule 2210(d)(6) when the review references investment performance or investment advice provided by the advisor:

» The fact that the testimonial may not be representative of other customers’ experience.

» The fact that the testimonial is no guarantee of future performance or success.

» If more than $100 in value is paid for the testimonial, the fact that it is a paid testimonial.

If you’re questioning whether it will be worth your time to ask your clients for testimonials and then promote your reviews online, consider these statistics from consumer surveys conducted in the last few years:

» 87% of consumers said they read online reviews for local businesses in November 2020, up from 67% in 2010, according to the BrightLocal annual report.

» 88% of consumers said online reviews played a role in discovering a local business in 2020, BrightLocal reported.

» 58% of consumers said they would be willing to travel farther to a business with better reviews, according to Podium Research.

Looking more specifically across other trust-based professions such as doctors and lawyers, where reviews have been permitted for many years, consumer behavior could be a harbinger of what’s to come as financial advisor reviews proliferate.

As reviews of financial advisors begin to proliferate online, the voices of millions of satisfied clients finally will be heard.

» 83% of consumers in a 2018 study said they trust online reviews of doctors more than personal recommendations, according to an NRC Health Market Insights survey.

» 47% of consumers used online review sites for attorneys, and legal directories to find a lawyer, ranking higher than any other resource, a Martindale-Avvo survey showed.

» 46% of consumers read online reviews of an attorney to conduct additional research after a personal referral, according to Martindale-Avvo.

Whether you plan to be among the first financial advisors to get started with online reviews or you prefer a wait-and-see approach, you’re likely to see an increasing number of advisors in your community promoting testimonials as part of their marketing plan. It’s important to begin thinking about your plans for online reviews today to ensure you’re prepared no matter how you choose to proceed.