As of Nov. 4, advisors are required to comply with the Securities and Exchange Commission's new marketing rule. The marketing rule tightens oversight of marketing practices and policies, but also expands advisors' ability to use client testimonials in marketing materials.
With these new marketing powers come certain responsibilities pertaining to obtaining testimonials and disclosures that must be made alongside the testimonials.
The marketing rule defines testimonials as "Any statement by a current client or investor in a private fund advised by the investment advisor: (i) about the client or investor's experience with the investment advisor or its supervised persons (ii) that directly or indirectly solicits any current or prospective client or investor to be a client of, or an investor in a private fund advised by, the investment advisor; or (iii) that refers any current or prospective client or investor to be a client of, or an investor in a private fund advised by, the investment advisor."
How to Obtain and Advertise Testimonials
When the time comes to request testimonials from clients, there are certain steps that advisors must take to ensure compliance with the marketing rule.
To start, the rule prohibits "cherry picking." If an advisor decides to ask clients for testimonials, the advisor is required to ask all clients (or, with limitations, a specific subset of similar clients, such as all ERISA plan clients), not just those who might provide a positive review.
Similarly, advisors must be fair and balanced when including testimonials in advertising material and must include any positive and negative testimonials. The advisor must document and maintain records indicating that all clients have been invited to provide a review, regardless of whether the client has had a positive or negative experience (as indicated in its written response) with the firm.
What Testimonial Disclosures Must Be Made
When including testimonials in marketing materials (e.g., on the firm's website), disclosures must be made on the same page and be as prominent as the testimonial itself.
