It is a common practice in the age of social media to consult with web-based review sites when choosing which restaurant to dine at or which hotel to book for a vacation. Reading what other customers had to say about their experiences with a particular establishment, both positive and negative, helps us make our own decisions. This method is right for almost every service sector – from electricians to dentists. Shouldn’t this same web-based review system be used to help people choose a financial advisor?
Well, now it can, but it took the approval and some guidelines from the Securities and Exchange Commission (SEC) and its Division of Investment Management before this idea could be put into practice, with some caveats, of course.
The SEC has recently published guidelines laying out the manner in which financial advisors can use consumer reviews to help them advertise their services. By publishing reviews which have been posted on independent third-party sites, financial advisors now have one more way to market and sell themselves and their services. When publishing user reviews, however, both negative and positive reviews must be included.
These guidelines pertain to Rule 206(4)-(a)(1) of the Investment Advisers Act of 1940, which was originally created to prevent financial advisors from publishing false testimonials in an effort to lure in prospective clients. This nearly 75-year-old rule certainly doesn’t take into account the advent of the internet and review sites like Yelp and Angie’s List, which verify, to some extent, the authenticity and identity of the sites’ users and their posted comments.
Should financial advisors embrace this decision and promote user reviews on their own websites? Since both positive and negative reviews must be published, does one negate the other thus rendering the whole practice pointless? How easily can these rules be manipulated? Ask any restaurant owner with reviews on a site like Yelp, for instance, and they will probably tell you a tale of a disgruntled customer who could not be pleased and who then felt the need to take revenge on a very public forum. How much should we trust user reviews and ratings anyway?
This is a question only time can answer. Indeed, positive reviews will bolster the reputation of any business. This may encourage financial advisors to increase their presence on social media networks like Twitter and Facebook, which have proven to be important and successful marketing tools for almost every other industry. The financial sector already has an internet presence, of course. People have been able to compare bank rates and financial products for quite some time. Individual financial advisors which are just now being allowed in this game.
The guidelines aren’t quite clear on the way the balance of negative and positive comments and ratings should be handled. Negative comments should be embraced by any business person and/or company and used as a tool to help correct and improve services, thereby to increase the value of this service.
If you feel you could benefit from utilizing comments posted on third-party sites, make sure you are in compliance before you publish them on your own website or social media page. With the nature of the continual review process, it may be difficult to keep up with newer reviews, but links to these sites (and their logos) are allowed. However, Rule 206(4)-(a)(1) advises against purposely trying to drive traffic to these third-party sites. If it seems a bit contradictory and more than a little vague, it is. This is new territory, and we haven’t quite figured out all the boundaries yet.
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