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Table of Contents
- SEC Investment Adviser Marketing Rule FAQs
- A Brief History of Financial Advisor Reviews
- Introducing the SEC Investment Adviser Marketing Rule
- How Should You Use Financial Advisor Reviews and Ratings?
- What Financial Advisors Need to Know About Reviews and Ratings
- Why Online Reviews Matter
- The Impact of Online Reviews on Financial Advisor Search Results
- Choosing an Online Financial Advisor Review Platform
- The Bottom Line
You can easily find reviews online to help you evaluate doctors and lawyers, but when it comes to choosing a financial advisor, you’re mostly out of luck. In fact, the US government has made it difficult for Americans to evaluate financial advisors based on reviews from their clients dating back to 1961.
But a new rule announced on December 22, 2020 by the Securities and Exchange Commission (SEC) that becomes effective on May 4, 2021 means both financial advisors and directory websites that help consumers search for a financial advisor will be able to collect and display advisor reviews when the rule takes effect, an important factor worth considering when choosing who you’ll hire to manage your investments and life savings.
In this article, you’ll learn why the SEC frowned upon financial advisor reviews for the last 60 years, what finally changed their mind and the importance you should place on ratings and reviews relative to other factors when hiring a financial advisor.
We also share insights to help financial advisors understand the significance of the new rule to their business, including the importance of online reviews to local businesses and other professions as a proxy of what to expect, plus a discussion of how advisor reviews could impact advisor websites in online search results.
As additional details about the new rule and its timetable become known, we’ll update this article to help consumers, advisors and industry stakeholders understand what to expect when reviews for financial advisors proliferate online.
SEC Investment Adviser Marketing Rule FAQs
The SEC Investment Adviser Marketing rule becomes effective on May 4, 2021, 60 days after it was published in the Federal Register.
The compliance deadline for the SEC Investment Adviser Marketing rule is November 4, 2022, eighteen months after the May 4, 2021 effective date. (Source: Federal Register)
Because it’s a violation of Yelp’s terms of service for businesses to ‘solicit or ask for reviews’ from their customers, financial advisors are unable to encourage their clients to write a review on Yelp, even after the new SEC Investment Adviser Marketing rule becomes effective on May 4, 2021.
Yes, financial advisors can have reviews on Google today as long as they have not been solicited by the advisor. Once the new SEC Investment Adviser Marketing rule becomes effective on May 4, 2021, financial advisors can ask clients to leave a review on Google, but cannot compensate clients for their review, a practice prohibited by Google.
When the new SEC Investment Adviser Marketing rule becomes effective on May 4, 2021, Wealthtender is positioned to become the first independent financial advisor review platform fully-compliant with SEC regulations.
A Brief History of Financial Advisor Reviews
In 1961, the year when John F. Kennedy became president of the United States, the SEC issued a rule prohibiting financial advisors from including client reviews when advertising their services. In fact, the rule concluded that an advertisement featuring a client review (referred to by the SEC as a ‘testimonial’) would “constitute a fraudulent, deceptive, or manipulative act, practice or course of business”.
Of course, the SEC deserves credit for the important role it plays protecting consumers from harm through its oversight of the financial services industry. And the prohibition of testimonials has certainly alleviated SEC concerns of financial advisors cherry picking 5-star reviews to promote their investment advisory services while burying 1-star reviews.
But this prohibition effectively silenced the voices of millions to a whisper over the past six decades whose opinions of their financial advisors were limited to cocktail parties while online reviews of professionals in other industries proliferated.
In 2019, the SEC acknowledged their 60-year old rule was doing consumers a disservice by not providing an opportunity for people to evaluate a financial advisor based on reviews as one factor in their hiring decision, in the same manner people research other professionals like doctors and lawyers online (not to mention mechanics, plumbers and babysitters).
Introducing the SEC Investment Adviser Marketing Rule
First proposed in 2019, the SEC collected more than 90 comment letters from industry stakeholders and feedback forms from individual investors that helped shape their new Investment Adviser Marketing rule announced on December 22, 2020.
The SEC Investment Adviser Marketing rule was officially published in the Federal Register on March 5, 2021 and becomes effective on May 4, 2021.
Once the new rule becomes effective, the SEC is granting an 18 month transition period before advertisements must comply with the new marketing rule.
According to Christine Lombardo, an attorney with the law firm Morgan Lewis quoted in this InvestmentNews article, regulatory leniency could allow financial advisors to “start testing the waters with testimonials and other marketing efforts allowed in the new rule” sooner rather than later.
What is the Investment Adviser Marketing Rule?
The Investment Adviser Marketing rule allows financial advisors to provide investors with useful information to help them evaluate and choose investment advisers and advisory services, subject to conditions stipulated by the Securities and Exchange Commission (SEC) designed to prevent fraud.
In a press release issued on December 22 announcing its modernized marketing rule for financial advisors, the SEC acknowledged that technology and consumer expectations have changed dramatically since its decades-old advertising rule took effect.
According to SEC Chairman Jay Clayton, “The marketing rule reflects important updates to the traditional advertising and solicitation regimes, which have not been amended for decades, despite our evolving financial markets and technology.” He goes on to say the new rule “recognizes the increasing use of electronic media and mobile communications and will serve to improve the quality of information available to investors.”
While the Investment Adviser Marketing rule removes the severe limitations on financial advisor reviews, the SEC maintains its important role protecting consumers by requiring disclosures and conditions that must be met to ensure reviews are presented in a fair and balanced manner.
(It’s important to note the Investment Adviser Marketing rule is hundreds of pages in length covering multiple related topics, while this article is specifically focused on a discussion of its implications for financial advisor reviews and ratings.)
Financial Advisor Reviews: Disclosure and Oversight Requirements
Financial advisors who choose to include client reviews in their advertising under the new rule will need to work closely with their compliance officers to ensure they satisfy the SEC’s new disclosure and oversight requirements. And consumers will benefit from an understanding of the protections set forth by the SEC when reading (or writing) a review for a financial advisor.
Key SEC expectations for advertisements featuring financial advisor reviews include:
- Clear and prominent disclosure indicating:
- If a review is from a client or non-client
- Whether or not the reviewer was compensated
- How the reviewer was compensated (in cash or otherwise)
- Any conflicts of interest (including a description of conflicts)
- A written agreement must be in place between a financial advisor and reviewer (unless the reviewer receives less than $1,000 for their review in cash or otherwise within a 12 month period)
The SEC also made it clear these requirements apply even if the review is a social media post like a tweet with a limited number of characters.
Financial Advisor Ratings by Third Parties
Under the new rule, financial advisors will be allowed to advertise ratings they receive from third party firms, subject to additional disclosures and conditions stipulated in the Investment Adviser Marketing rule.
In fact, the SEC states they anticipate approximately 50 percent of financial advisors will use third-party ratings in advertisements, so a proliferation of third party ratings of financial advisors may be on the horizon.
Key SEC expectations for advertisements featuring financial advisor ratings include:
- Clear and prominent disclosure indicating:
- The date on which the rating was given
- The period of time upon which the rating was based
- The identity of the third-party that created and tabulated the rating
- (If applicable) That compensation has been provided directly or indirectly by the financial advisor in connection with obtaining or using the third-party rating
- Financial advisors must have a reasonable basis for believing the questionnaire or survey used to prepare the rating meets certain criteria, including making it “equally easy for a participant to provide favorable and unfavorable responses”
- The firm publishing the rating can not be affiliated with the financial advisor and must be in the business of preparing ratings in their ordinary course of business
(These SEC expectations are summarized and don’t reflect all disclosure, oversight and disqualification provisions discussed in detail in the rule.)
How Should You Use Financial Advisor Reviews and Ratings?
Whether you’re preparing to hire a financial advisor or currently working with one, you’re likely to see more frequent ratings and reviews of financial advisors potentially as early as summer 2021. While ratings and reviews can be a useful tool to evaluate professionals in any industry, it’s important to consider many factors and weigh their relative importance based on your individual needs and expectations.
Using Reviews to Evaluate a Financial Advisor
When you’re evaluating a financial advisor, you’ll want to understand the services they offer, how they’re compensated, any financial certifications they hold, and their background and industry experience. You may also prefer a financial advisor who will work with you online or who specializes in working with clients with similar needs or interests to your own.
With so many factors to consider, reviews from current or past clients of financial advisors can certainly offer a lens into the experience of others which may prove valuable in your evaluation.
But you should ask yourself the following questions before deciding how much importance to place on a financial advisor review:
- Is the review from a client of the advisor or a non-client?
- Is the content in their review relevant?
- Did the reviewer get compensated to write their review?
- What biases might the reviewer have that I should consider?
- Does the review sound too good to be true?
If you can’t answer these questions because the required disclosures aren’t accompanying the review, this may be a red flag indicating the advisor may not be in compliance with the new SEC rule. Also, you should expect that financial advisors you speak with are prepared to discuss reviews you’ve read and ready to help clarify any questions you have after reading their online reviews.
Writing a Review for a Financial Advisor
If you currently work with a financial advisor or have worked with one in the past, writing an online review could help other people learn from your experience. Or, if you’re not a client of a financial advisor but you know him or her well, your perspective on their trustworthiness, experience and other qualities can still prove quite valuable.
It may be several months before your own financial advisor (or financial advisor acquaintance) reaches out to ask if you’ll leave them a review, though there’s no requirement for the new rule to become effective for an advisor to begin collecting reviews. Also, many financial advisors may choose to not proactively ask for reviews or prefer to wait even longer before deciding to ask for reviews.
In the interim, directory websites that help consumers search for a financial advisor will assess the new rule to determine if and when they will begin to collect and display consumer ratings and reviews for financial advisors. (In full disclosure, Wealthtender currently collects and displays consumer ratings and reviews of personal finance blogs, podcasts and financial coaches with plans to expand to financial advisors once permitted by the SEC to do so).
If you do decide to write a financial advisor review, you’ll want to put yourself in the shoes of someone reading your review and also think about what you personally would find most useful to craft a thoughtful review that is fair and balanced.
Featured Financial Advisors on Wealthtender
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What Financial Advisors Need to Know About Reviews and Ratings
As a financial advisor, it’s important to understand how this new rule could affect you and your advisory business. Even if you don’t plan to ask for reviews or include reviews in your own marketing activities, you’ll need to be prepared to respond to questions from prospects and existing clients when they begin to see reviews appear online for other financial advisors.
Why Online Reviews Matter
While online reviews may be new to financial advisors, an evaluation of their impact on local businesses and professionals in other industries demonstrates why it’s imperative to begin preparing for a future where consumers are empowered to voice their opinions about you and your services.
Understanding Consumer Views of Online Reviews
The importance of online reviews on local businesses can be seen in numerous research reports conducted each year.
In an annual report prepared by BrightLocal based on a survey conducted in November 2020, 87% of consumers said they read online reviews for local businesses in 2020, up from 67% in 2010. The report indicated after reading a positive review for a local business, the next most likely actions are visiting the website of the business, searching for additional reviews to validate their choice and visiting the business in person.
And according to a research survey conducted in October 2020 by SurveyMonkey Audiences commissioned by Podium, among the 1,543 consumers surveyed, 88% said online reviews played a role in discovering a local business, 65% have read an online review in the last week and 41% said online reviews are 1 of the 3 most important factors they consider when choosing a local business.
Financial advisors interested in growing their practice should take note of these additional findings:
- 85% said employee attitude is the leading motivation to leave a positive review
- 58% of consumers said they would be willing to travel farther to a business with better reviews
- 47% are willing to pay more at a business with higher reviews
- Over 60% of consumers said they are likely to leave a review after a good experience with a local business when the business follows up with a link in an email asking for a review
As Emmy-winning writer David Pogue wrote about online review sites in Scientific American nearly 10 years ago, “No longer are you on top of the mountain, blasting your marketing message down to the masses through your megaphone. All of a sudden, the masses are conversing with one another. If your service or product isn’t any good, they’ll out you.”
What Financial Advisors Can Learn About Online Reviews from Doctors and Lawyers
Just because online reviews are new to financial advisors, doesn’t mean online review sites are strangers to the financial services industry. Investment banks and private equity firms have played a major role in financing and advising online review sites for nearly 20 years.
In the legal and healthcare industries alone, online review site M&A activity has included:
- FindLaw acquired in 2001 by Thomson Reuters for an undisclosed price
- Healthgrades acquired in 2010 by Vestar Capital Partners for $294 million
- Lawyers.com joint venture formed in 2013 by an entity now owned by KKR
- WebMD acquired by KKR in 2017 in an all-cash deal valued near $2.8 Billion
With millions of reviews of doctors and lawyers, these sites often rank on the first page of Google results when consumers search for these professionals. In the BrightLocal consumer review survey, 89% of consumers said they look at reviews of medical professionals and 81% look at lawyer reviews. Over 80% of consumers said they believe reviews are important across both categories of professionals.
For doctors and lawyers, online reviews have simply become a fact of life and requirement for conducting business. For financial advisors preparing for the new Investment Adviser Marketing rule, it’s worth considering insights gained about the role of online reviews across both professions.
In 2018, an NRC Health Market Insights Study of over 3,000 patients showed that 37% used online reviews as their very first step in searching for a new doctor. And even when getting a recommendation from someone they trust, 21% then turned to online reviews to verify what they were told.
Additional patient findings included:
- 83% said they trust online ratings and reviews more than personal recommendations
- 48% trust online ratings and reviews as much as a recommendation from their doctor
- 75% want to see at least 7 ratings before they trust a doctor
- 66% consider reviews older than 18 months to be out of date
- 59% said positive and negative reviews are equally valuable to them
- 60% said they’re suspicious if they only see positive reviews for a doctor
In 2018, a Martindale-Avvo survey of 6,300 consumers asked the criteria that mattered most to them when choosing an attorney. When asked what information they desired before their first contact with an attorney, online reviews or client testimonials ranked 5th among 20 factors. The survey also noted consumers aged 25-35 gave greater weight to reviews and testimonials than consumers over age 54.
Additional consumer findings included:
- 47% used online review sites and directories to find an attorney (more than any other resource)
- 46% read online reviews of an attorney to conduct additional research after a personal referral
As Meranda Vieyra eloquently stated in The National Law Review, “The great thing about online reviews is that you have power to present your law firm and yourself with dignity and class, regardless of how good or bad your online reviews are.” For financial advisors preparing for the Investment Adviser Marketing rule, these words may prove prescient.
What Advice Do Doctors and Lawyers Have for Financial Advisors?
We asked several doctors, lawyers and online review experts with experience in the medical and legal professions to offer their perspective for financial advisors preparing for the new SEC marketing rule. Here are a few of the highlights:
Max Meinerz, DDS
“Online reviews offer a way for you to invest some energy in generating a positive marketing message today that will be on the internet for minimally the length of your career.
Most patients and clients are happy to write you reviews and love the idea of sharing their chosen professional with others. You simply have to make a practice to ask and build a culture of referral inside of your organization.
Every compliment offered to you or any person on your team can be an invitation to ask for a review or referral. Responding in the moment is extremely important and making it very easy for clients to write that review by emailing/texting a link to your review page can assist in boosting reviews.
Make sure to spread your reviews across multiple platforms that are relevant to your industry. Only focusing on Google reviews can hurt you if Google chooses to change their search algorithm in a way that doesn’t jive with your SEO strategy.”
“Online reviews are critical to any business in this digital age. As clients skew younger, they obtain nearly all of their information online. Online reviews provide multiple benefits, including marketing support, differentiation in a crowded market, business protection/insurance (positive reviews drowning out a negative review), pre-client meeting screening and validation.
Online review sites have helped me but they can also hurt your business if you don’t have an online review strategy as part of your marketing efforts.
Many of my clients have mentioned my reviews on Avvo [an attorney online review site] when hiring me so that is a positive.
Sites like Yelp are more mixed, especially since Yelp solicits advertising and punishes non-advertisers. As an example, I used to ask clients to write Yelp reviews and accumulated 10 to 15 five-star reviews.
At some point, Yelp asked me to advertise and when I declined, they buried ALL of my reviews under ‘Reviews NOT Recommended’ and they do not appear unless you scroll down and click on that link. It’s a common Yelp complaint from business owners and HARO founder Peter Shankman has commented and blogged about it in depth.”
Mrinalini “Melanie” Jayashankar
Attorney/Owner of the MJ Law Firm
“We are in the age of the internet. People make most decisions based on online reviews and recommendations. Therefore, having an exemplary online footprint with great online reviews is one of the best ways to grow your business.
Be proactive about online reviews and actively seek them out. The best way to get started is to start finding out about free directories and review websites for your profession. Claim your profile if applicable, and allow for online reviews. Start requesting reviews for multiple sites so that when people Google you, they will encounter multiple favorable reviews.
I always ask prospective clients to Google me and form their own opinions. My reviews speak for themselves, and most prospective clients feel more comfortable hiring me after seeing the multiple favorable reviews online. Have your online reviews work for you! Your former clients can sell you better than you can sell yourself!
I utilize both Avvo [an attorney online review site] and Google for reviews. I feel that both have positively impacted my practice. Most prospective clients comment that they looked me up online and were happy to see positive reviews. Online reviews also provide other benefits. You can share links to review sites on your website which can improve website traffic. Having multiple favorable Google rankings can potentially also improve your Google ranking in searches and general SEO performance.”
“Online reputation management is a burgeoning area in the new digital world where Google is now your new digital front door. What you say and what you post matters. And not posting and staying silent can also impact your reputation and damage trust. People expect instantaneous responses in a 24/7 connected digital world.
One thing I always tell doctors is to make sure they get online reviews the right way. This means don’t write fake reviews or have people try to write reviews who have never used your services. Navigating online reviews is challenging- it is why people hiring my agency, Ruby Media Group, to help them with this and have a consultant on retainer to craft these responses in real time in a way that mitigates risk and causes the least amount of harm. In addition to not causing harm, you also want to see if you can ’turn the tide’ to turn someone who is disgruntled into someone who can become an advocate. If people take the time to write a terrible review about your practice, they ultimately want to feel heard.
Step 1: Make them feel heard. Use their name when replying. “Hi X”
Step 2: Validate their feelings with true empathy. Strip the emotion out of what they are saying and objectively try to hear what the complaint is. Address it. Do not ignore it.
Step 3: Know when to stop. If you have tried every possible avenue to be accommodating to someone and they still continue to trash your business in every reply, a public thread of a business owner arguing is never a good look.
Online reviews have tremendous potential to impact your reputation, but ultimately, how you respond to the reviews has a greater impact. Respond with elegance in a way that is on brand for your company. People do not only measure a business by the negative reviews. Ultimately, they measure the business by the way the owner replies. Fundamentally, that is 50 % of the equation here, and the part that is unfortunately overlooked.
You as the practice owner have the power to help or hurt your online reputation. You have more power than you think and that starts with you and how you choose to handle difficult online situations.”
David Reischer, Esq.
Attorney & CEO of LegalAdvice.com
“My most important piece of advice to financial advisors fearful of online reviews is to work extremely hard to make sure they weed out potential bad reviews before they happen. I have been told by consumers at company trade shows that we attend that typically they just scan the attorney reviews looking for consistency among the reviews. If a pattern emerges for an attorney that is mostly negative then it is usually a good indicator of a problem.
Good reviews aren’t as important and valuable an indicator as bad reviews. Try to be proactive and preemptive to make sure a customer is satisfied before they post a negative review by asking a customer what can be done to make them happy and satisfied.”
But Financial Advisors are Different!
While longstanding skepticism of online review sites for financial advisors ever succeeding has been justified based on the decades-long prohibition of client reviews, we believe the pending relief offered by the SEC is a watershed moment.
In a 2013 blog post responding to a question about advisor review sites, Michael Kitces, publisher of the financial planning industry blog Nerd’s Eye View, emphasized the regulatory prohibition as the largest impediment to their success, followed by doubt that online review sites could get enough ‘reviews-per-advisor’ or steer reviews to their site vs. advisors’ own websites.
Flash forward to a 2019 Barron’s article discussing the SEC’s initial proposal that hinted at removing the prohibition of client reviews, and Kitces stated his anticipation for a lot more reporting of third-party advisor review sites and predicted (correctly, ahem) the likely creation of start-ups “specifically to meet this challenge”.
Based on our assessment of other professions like doctors and lawyers where consumer trust is paramount and online review sites have flourished, we anticipate a similar proliferation of review sites for financial advisors once the Investment Adviser Marketing rule takes effect.
The Impact of Online Reviews on Financial Advisor Search Results
Will online reviews of financial advisors impact how prominently a financial advisor and their website appears in Google search results? Very likely, the answer is yes, thanks to E-A-T and YMYL.
E-A-T and YMYL
E-A-T is a term used by Google that stands for Expertise, Authoritativeness and Trustworthiness as it pertains to the creator of website content. The term originates from a 175-page document used by human ‘Quality Raters’ to assess the quality of Google’s search results.
YMYL is another term defined by Google in the document as topics that could impact ‘Your Money or Your Life’. Specifically, Google states that “Some types of [web] pages or topics could potentially impact a person’s future happiness, health, financial stability, or safety. We call such pages “Your Money or Your Life” pages, or YMYL.”
Financial advisor websites are already subject to higher E-A-T and YMYL standards by Google than websites on topics of less importance to people’s lives.
When online reviews of financial advisors proliferate, Google’s guidelines for Quality Raters hint at the importance they’ll place on third party reviews over client reviews found directly on a financial advisor’s website. Specifically, Google states “you must also look for outside, independent reputation information about the website. When the website says one thing about itself, but reputable external sources disagree with what the website says, trust the external sources.”
Choosing an Online Financial Advisor Review Platform
Until the new SEC rule becomes effective, now is a good time to begin evaluating third party platforms that plan to host online reviews when the Investment Adviser Marketing rule takes effect.
Beyond online review sites dedicated to the financial services industry, popular sites like LinkedIn and Google itself represent platforms where online reviews of financial advisors may proliferate in the future (and to a limited degree, have served as an outlet for consumers who have written advisor reviews of their own volition.)
Just as Google considers the expertise, authoritativeness and trustworthiness of financial advisors, it’s important to consider similar E-A-T factors when choosing an online financial advisor review platform. For example, questions you could ask include:
- What experience do you have in the financial services industry?
- How well do you understand the Investment Adviser Marketing rule?
- How will you work with my compliance officer to build trust and rapport?
- What other features and benefits does your platform offer to help grow my practice?
- Why should I choose your platform over others?
The Bottom Line
Whether you’re a consumer, financial advisor or stakeholder affected by the Investment Adviser Marketing rule, the forthcoming changes permitting online reviews of financial advisors are noteworthy. For financial advisors, now is a great time to begin planning for a future where collecting and responding to reviews becomes a routine part of your business, and potentially your marketing strategy.
To receive future updates from Wealthtender, sign up for our weekly newsletter and follow Wealthtender on LinkedIn. If you have questions or would like to discuss online reviews for financial advisors in greater depth, please email firstname.lastname@example.org or call Brian at (512) 856-5406.
About the Author
Brian is CEO and founder of Wealthtender. He and his wife live in Texas, enjoying the diversity of Houston and the vibrancy of Austin.
With over 25 years in the financial services industry, Brian is applying his experience and passion at Wealthtender to help more people enjoy life with less money stress.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.