SEC Marketing Rule Brings New Freedom, New Requirements: Brian McLaughlin

The new marketing rule for RIAs went into effect on May 4, 2021, replacing the "outdated patchwork [of] advertising and cash solicitation" rules, as the Securities and Exchange Commission referred to them in announcing the reforms' finalization in 2020.

On Nov. 4, compliance with the new rule becomes mandatory.

What is perhaps most exciting about the modernization is that the rule reverses the SEC's prohibition of testimonials and endorsements, thereby letting advisors market and advertise on social media so long as they're compliant.

Under the musty 40-year-old rules, "there was nothing that addressed a firm using modern technology," Brian McLaughlin, president of Orion Advisor Technology, tells ThinkAdvisor in an interview.

But along with the new, game-changing freedom comes a barrelful of stringent technical compliance requirements. These include updated disclosures, a written Promoter's Agreement and Promoter's Disclosure Statement, adoption of new policies and addition of a sector to Form ADV that advisors must provide.

Redtail Technology, the firm McLaughlin founded in 2003, was acquired by Orion in June of this year. At Redtail, he created the highly popular web-based client relationship management software Redtail CRM.

Redtail aims to essentially "protect advisors from having too many complications to detract from the benefits of a CRM," he says in the interview.

A new version released this year has expanded texting capabilities for communication between advisor and client.

"Texting delivers messages directly wherever the client is," McLaughlin says. "That's really powerful."

Another helpful texting feature: Archiving texts is easy. That should be useful in the upcoming SEC exam sweep, which the commission plans to conduct to determine whether advisors are complying with the new marketing rule's requirements.

In the interview, McLaughlin talks about how RIAs need to prepare to make certain they're compliant — if they haven't already done so.

To be sure, advisors should check new processes, marketing plans and communication policies.

ThinkAdvisor recently held a phone interview with McLaughlin, who was speaking from Orion headquarters in Sacramento.

Underlying his innovative approach to tech is the view that "people want technology that's easier and process-driven … you do the same thing repetitively in the same way every time," he says.

Here are highlights of our interview:

THINKADVISOR: Nov. 4 is the compliance date of the SEC's new marketing rule for RIAs, which became effective May 4, 2021. What should advisors be doing to prepare?

BRIAN MCLAUGHLIN: They'd better make sure their marketing plans and communication policies, especially around mobile communication and how they talk to clients, are reviewed and all boxes checked.

This means being sure all the communication pieces from their firms are up to date.

They should review the processes and double-check their data and marketing campaigns.

Please compare the marketing rules that were previously in effect to the new marketing rule.

This rule really clears up what you can and can't do. Now there are actually some boundaries, like guardrails, that advisors can follow and start doing some of the things they wanted to do but couldn't before.

It wasn't clear where the boundaries were. That made it tough for a lot of advisors. So instead of engaging in [marketing] activity, they just wouldn't do anything.

There was nothing that addressed a firm using modern technology. That's what really got opened up and was made clear for everybody. A big chunk of the new rule was to modernize.

It's much more focused. It's more principles-based in making clear to advisors what they can and can't do.

How is the new rule different with regard to client endorsements?

In the past, if an advisory firm got an endorsement for their services from a client, they couldn't use it in a marketing piece. Now they can — as long as they disclose it properly.

I'm not a compliance officer; but it appears to me that as long as the advisors have the appropriate disclosures, including a Promoter's Disclosure Statement, and are clear on their communication, they're good to go.

You've got to be clear that you're telling people that this is a public endorsement.

How does the rule apply to the use of social media?

The new rule lets advisors use it more. It opens [things] up so they can use these tools and different technology platforms.

You just have to have clear disclosure that it's a marketing piece and not just an opinion you're tossing out there.

When you put a marketing piece on Twitter, you must link it back to various disclaimers. Before the rule, people would just tweet something; but it wasn't very clear whether it was fact or opinion.

Please discuss some of the rule's prohibitions.

In making a statement of fact, you need to have a reasonable basis for that. It's simply being honest and fair to the people you're serving or prospecting.

You need to say [in effect], I'm advertising this; but [be aware] that there are other options too.

Don't be misleading.

It seems that these are basic core values that the advisors and firms should have anyway.

The SEC will be doing an exam sweep to check compliance with the new rule. How can advisors best prepare for those?

The SEC gives you a chance to pull all your data together before they [arrive]. When the SEC comes in for a sweeps audit, they [may] want to know every communication you've had with a particular client.

Because you've [hopefully] kept a record of it, you can generate that material and show it to them.

Even if it's as simple as, "We've got an appointment tomorrow at 2," you have to have a copy of that for fact-finding later on.

That's easy once an advisor starts texting the client.

For instance, if there's a debate around the client saying, "You told me X, but you did Y," compliance monitoring on texting allows the advisor to go back to the archive and say, "No, here's what we actually talked about."

[Our product] has had that capability for five years.

Why is it a good thing for advisors to be allowed to text clients?

There are so many reasons. Some of the big ones have to do with getting the content to the client in the way they want it: Most people today interact via text messages more than with phone calls. And emails get lost or fall out of view in your inbox, and you forget about them.

Whereas, when a text message comes in, you tend to see it right away, and your brain processes that content, which might be, for instance, that your advisor needs to talk to you.

You can attend to that [immediately]. But if it's an email, you'll think, "Oh, I'll look at it tomorrow."

What other capabilities make texting clients beneficial to the advisor?

Texting brings you where the client is rather than trying to bring the client to you — your firm.

Texting delivers messages directly wherever the client is. That's really powerful.

We're about to do automated messaging for Happy Birthdays!

Texting is actually an old technology but one that the industry couldn't capture. Now we can capture it.

To what extent do advisors take to the new technologies right away and love using them?

There are two groups: the early adopters, who want the newest, the greatest technology and like to figure out how they can implement it in their business. Whatever new thing comes out, they want it.

Then you have another group, the followers, who want to [wait] till something is more proven and out there for a while.

So you have the leading-edge people vs. the followers. But I think that every advisor and every firm are looking for ways to simplify the day-to-day work in their business.

People want technology that's easier and process-driven; that is, you do the same thing repetitively in the same way every time.

Are the followers going to lose out?

Yes. But as long as they keep their ears to the ground and pay attention, they'll know when they're ready to engage a new technology.

You don't want to get complacent in this business.

At Redtail, you introduced a highly popular web-based client relationship management (CRM) product for advisors. What's a key feature?

We designed the software almost to protect advisors from making too many mistakes or having too many complications to detract from the benefits of a CRM.

We showed them: This is what it can do for you with workflows and calendaring [etc.] and do it in a way that would be simple to replicate for their staff and on which they could get high-quality support and training.

When did you introduce it?

About five years ago, and a second version came out this year. It has enhanced capabilities for how a firm can use texting as internal communication, as well as between the firm and clients.

Your bio says you like to spend time off-hours building things with LEGO. Do you do that often?

Almost every day. I got back into it during COVID [stay-at-home orders]. I have a very creative brain for always coming up with ideas, but LEGO was a way to turn that off and just follow instructions and build.

It's like a different piece of the creative brain kicks in.

What do you make?

With the advanced LEGO version, I build cars and motorcycles and bring them into the office. I put them on bookshelves or other places.

LEGO is always fun!