Since the 1970s, the Securities and Exchange Commission (SEC) has prohibited Registered Investment Advisers (RIAs) from using client testimonials in their advertising. While their rules were intended to protect consumers by preventing advisors from showcasing only the best investment results of a few select clients, two major developments in recent years have necessitated reforms of the existing rules to permit the use of testimonials by financial advisors.
First, consumers are increasingly reliant on testimonials and reviews when choosing which products and services to buy, leading to the massive growth of testimonial-based marketing in other industries, but leaving financial advisors without a key tool in their marketing toolbox. Second, the expansion of RIAs’ services beyond ‘just’ investment advice – often addressing increasingly complex family, career, and retirement questions alongside (or sometimes even instead of) managing an investment portfolio – means that the blanket prohibition against testimonials, meant to tamp down on misleading performance numbers, also stifled advisory firms’ ability to highlight other important features like planning expertise and exceptional client service that might matter far more to potential clients than past investment returns.
In May 2021, the SEC finalized its updated advertisement rules to allow the use of testimonials in RIA marketing materials. This change offers a new opportunity for advisory firms to provide social ‘proof’ of their ability to build relationships through their services and to develop trust and a positive reputation among potential clients. The proliferation of options available to potential clients makes the ‘stamp of approval’ of a good testimonial a key part of the client’s decision of whom to hire, which makes it all the more important for advisors to understand how to deploy testimonials as part of their overall marketing strategy.
The core goals of using testimonials are to connect with a target audience in a relatable and authentic way and to highlight the firm’s services and specialties. Accordingly, a good testimonial will go beyond general praise, and will instead reflect the firm’s own values and areas of specialization. For example, a firm with a certain niche focus might use a testimonial that specifically acknowledges their unique area of expertise, not just in a positive manner, but with honesty as well – after all, the trust-building effect of testimonial advertising only works as far as the testimonials themselves are trustworthy.
Of course, the ability to select good testimonials depends on actually having a ‘supply’ of testimonials, so firms must find some way to gather testimonials to be able to choose the ones that work best for them. Some firms may already have an existing trove of material on third-party review sites like Yelp or Google Reviews (which were permitted before the new rules went into effect), while others can use a Net Promoter Score (NPS) survey or a direct email request to current clients to obtain new testimonials.
Regardless of how the testimonials are ultimately used – on the firm’s website, in social media posts, on third-party platforms, or elsewhere – they should complement the firm’s overall marketing strategy and comply with SEC rules including appropriate disclosures and client confidentiality (e.g., the client must give permission for the firm to use their testimonial in public). Luckily, the same principles that make for an effective testimonial – honesty, authenticity, and transparency – also lend themselves to compliance under the new rule, so that ultimately, firms that take advantage of the new rule allowing testimonials can do so while highlighting their services in a relatable, trust-building way!