The instincts of an advisor, or any person in the business world, is to tell his story to the world, as loudly and glowingly as possible. But like a dip in the lake in subarctic temparatures, the SEC imposes restrictions that serve to cool the ardor of an investment advisor seeking to make a case to prospective clients.
Since a cold shower beats the boiling cauldron of an SEC enforcement action, AdvisorOne asked veteran consultant Nancy Lininger how they might explain their services with savvy but sobriety. Lininger, owner of the consultancy The Consortium, has been helping investment advisors and broker-dealers steer clear of regulatory trouble for three decades. Herewith her seven rules of thumb for compliant marketing.
1. Don't Make Unsubstantiated Comparisons
"Don't say, "We're the best in the region, the largest or the oldest." Unless you can substantiate the claim, you shouldn't use it," Lininger warns.
Not unless you want a deficiency letter from the SEC.
"When the SEC comes in and audits you, they'll pick apart your marketing brochure and hold you to the fire and say, 'What documentation you have?'"
Deficiency letters are not the end of your career, Lininger adds. They do not go on any public record—they're just between you and the SEC. But "when they come back for a second time for an audit, it may lead to enforcement." You need to fix the deficiency and not be seen as a repeat offender. But prevention is the best medicine here: Avoid puffery.
2. Avoid Any Hint of a Guarantee
Don't say, "We get our clients to meet their financial goals," Lininger advises—again, unless you're looking for the SEC to ding you on a deficiency letter.
"All you have to do is hedge the statement: "We assist our clients in reaching their goals.' 'Our goal is to work with our clients to retire in style.'"
Lininger warns advisors against hiring a non-compliance-savvy marketing consultant, whose instincts will be to state the advisor's case in the strongest possible way. Only minimal tweaking is necessary to both make the case and avoid the offense of promissory language, she says.
3. Don't Make Inferences of Past Performance Without Proper Disclosures
"If you refer to past performance, there's a lot of disclaimers you have to have on your website and marketing material," Lininger says. "Some advisors don't want to go there." Those who do should be prepared to fill up the page with disclosures, she says.
While she'll work with clients who want to include returns data, Lininger says that generally smaller advisors avoid the issue while larger advisors with a national presence are more likely to feel they need to demonstrate performance.
4. No Endorsements or Inferences About Satisfied Customers
