Recently, the SEC has decided to allow brokers to employ client testimonials in their practice, opening a huge – and for some, unwelcome – can of worms.
Much like lawyers using client testimonials, brokers will run some risks in using them. Why? Because any implication that your past successes guarantee future ones will get you in hot water with those who regulate your profession.
As with everything else, the SEC offers some guidelines but not specific guidance.
Here is a sample of some recent policies & procedures I have worked on regarding this issue. It is by no means a complete set, but should give you an idea of what we are dealing with in this new era of client testimonials being used.
The Use of Testimonials in Your Business
The Firm will allow the use of testimonials based on the following:
- All testimonials must not include any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in the light of the circumstances under which it was made, not misleading;
- All statements contained within any testimonial must be able to be substantiated;
- Must not include information that would reasonably be likely to cause an untrue or misleading implication or inference to be drawn concerning the testimonial;
- Discuss any potential benefits connected with or resulting from an investment in an unfair or unbalanced manner;
- Any testimonials must be made by a current advisory client, current client at the time the testimonial was made;
- Client must not have received any cash or non-cash compensation for the testimonial;
- Testimonial must not reference specific past performance; and
- All testimonials must contain disclosures appropriate for the testimonial.
As with all advertising and sales materials, all materials must be submitted and approved by compliance prior to use.
Third-Party Communications
Third-party communications are companies and/or sites that allow for clients and the public to leave or post comments (i.e., Facebook, Google Reviews, Yelp, etc.). It is the policy of the Firm to allow its Investment Advisory Rep (IAR) to “claim” their site or business. If an IAR claims the business, they may not modify, edit, remove, delete, hide or post a response to any comments left on the site. Comments and “likes” in an IAR’s business Facebook or “endorsements” or comments in LinkedIn are also permissible provided that the IAR does not edit, modify, remove, delete, hide or post a response to any comment, like, or endorsement left. The IAR may not offer cash or non-cash compensation to any client or prospect for any testimonial, comment, or like. IARs are prohibited from soliciting or requesting comments or endorsements for any third-party site.
“Find an Advisor” Sites
Enrollment in any “Find an Advisor” site may only be made after the site has been reviewed and approved by Compliance. This requirement only applies to sites where the IAR can opt-in.
The Takeaway
If you feel the need to use client testimonials, talk to a professional first. Keep in mind compliance officers are not lawyers. They can only help you so much in navigating this area. Call the Law Offices of Christopher H. Tovar, P.L.L.C. for a consultation.
