Advisor Testimonials , Endorsements Under Scrutiny At SEC
The Securities and Exchange Commission is expanding its exams to look at how advisors are using client testimonials and endorsements , third-party ratings and Form ADV disclosures under its marketing rule , the agency said in a risk alert . SEC staff is “ conducting focused examinations , as well as broad reviews into testimonials and endorsements ” to see if there is clear disclosure about whether the person giving the testimonial or endorsement is a client or investor , to know whether the promoter has been paid or find out if there are material conflicts of interest , the SEC said . Examiners will also be looking to see that advisors have written agreements with any promoter they ’ re using , unless they ’ re affiliates of the advisor or the affiliation is disclosed or the promoters received compensation of $ 1,000 or less during the preceding 12 months , the SEC said in the June alert .
Advisors should also expect the SEC to flag instances where “ ineligible persons have been compensated for testimonials or endorsements .” That includes instances in which the advisor knew or should have known the person was ineligible , or was a “ bad actor ” prohibited from acting as a promoter , the agency said . Such people would be ineligible to provide testimonials if they have disqualifying criminal convictions or are the subject of an SEC opinion or order barring , suspending or prohibiting them from acting in any capacity under the federal securities laws .
SEC examiners will also be looking to ensure any third-party ratings in advertisements provide clear and prominent disclosure of the date of the rating , the period of time it covers , the identity of the third party that created the rating and any compensation the third party was paid , the SEC said .
Any questionnaires or surveys the advisor uses to collect third-party ratings must be structured to make it equally easy for a participant to provide favorable and unfavorable responses .
The agency is also expecting advisors to use the amended Form ADV to provide additional information about their marketing practices .
The SEC “ encourages advisors to reflect upon their own practices , policies and procedures and to implement any appropriate modifications to their training , supervisory , oversight and compliance programs ,” the agency concluded .
Wealthtender . com , one of the first websites to allow investors and promoters to review advisors , has published 600 reviews on the 50 advisors who have signed up for the service so far .
“ We ’ ve really de-risked and automated our process to make it easy for advisors to ensure they ’ re in compliance , but still get the benefit of a once-in-a-generation marketing opportunity to collect client reviews ,” says Brian Thorp , the founder and CEO of Wealthtender . com . After an advisor gets five reviews , these can start to appear in Google searches , he adds .
For every review received , Wealthtender sends the advisor , or their compliance officer , a link that allows them to check the SEC ’ s three requirements : that the review was written by a client or promoter , whether or not the reviewer was compensated and whether
Advisors should expect the SEC to flag instances where “ ineligible persons have been compensated for testimonials or endorsements ,” the agency said .
This is the second risk alert the SEC has issued laying out terms for advisors ’ compliance with the marketing rule . The first alert , published last September , detailed policies and procedures , substantiation , performance advertising and books and records requirements .
Some companies have launched services to help advisors create an online marketing presence using client testimonials . there is a conflict of interest , Thorp says .
“ If either the advisor or compliance officer needs to provide any disclosures around these three C ’ s , they can do so and then click submit ,” adds Thorp , who says one advisor on Wealthtender . com has a review from his mom , which is acceptable under the SEC marketing rule as long as the family relationship is disclosed prominently .
— Tracey Longo still use the account . We do recommend that any clients utilize an HSA if they meet the qualifications .”
An often-missed opportunity occurs when a client who ’ s working hits 65 . “ Instead of following the standard advice of filing for Medicare Part A , the working client could delay signing up for Medicare , continue to contribute to their HSA and build tax-deferred savings to use when finally retiring ,” says Steve Parrish , co-director of the Center for Retirement Income at the American College of Financial Services .
For younger adults , HSAs can be “ a great
way to jump-start preparation for future inflated healthcare costs ,” says Ockenga , who adds that these accounts are more appropriate for this younger cohort , who prefer low-premium high-deductible health plans where HSAs come in handy .
— Jeff Stimpson
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