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7 marketing and business development compliance tips for financial advisors in 2021

Advisors budgeting resources for their practices in 2021 should make marketing and business development compliance a top priority. 

Several changes are expected this year and RIAs will be well-served to focus on the new and evolving regulatory requirements.  

The most significant is the new SEC Marketing Rule, which will modernize the industry’s marketing rules for a digital age but also usher in fresh scrutiny.

To guide you, I’ve compiled a checklist of seven practical tips that you and your team can print off and refer to. Take a moment to review them to be prepared compliance-wise for 2021 and beyond.

Tip #1: Be familiar with year-end developments 

Read the new SEC Marketing Rule summary to understand the regulatory focus if you face examination this year. The new rule will not be effective until 18 months after it is published in the Federal Register. Further guidance is expected this year; however, the rule release includes advice based on existing SEC no-action letters, so it pays to adjust in the event you are subject to an exam and/or changes in market conditions. 

Additionally, if your practice involves marketing to Europeans, track enforcement actions to limit digital marketing unless it is strongly pro-consumer -- seeking informed consent and allowing for opt-outs. (See Landmark eprivacy Directive Cases)

Tip #2: Revise performance reporting use and disclosures 

Review your performance materials. Revise disclosures and approach for performance reporting to align with the new SEC Marketing Rule and seek help if you are unsure of the risks or how your digital tools work. (Example: review hypothetical performance, illustrations - gross and net of fees, use of back-testing, etc.)

Tip #3: Proceed with Caution for Testimonials and Endorsements

When in effect, the new SEC Marketing Rule will permit newly defined testimonials and endorsements as long as disclosure, oversight, and disqualification requirements are met. 

Before you proceed, you will need to carefully consider the details and open questions related to the guidance. At a high level, the new definition of “advertisement” includes compensated “endorsements” and “testimonials.” Compensation will be broadly interpreted to include cash and non-cash payments or benefits such as payment, discounts to advisory fees, directed brokerage, or other benefits conveyed in exchange for awards or additional endorsements. 

Endorsements and testimonials must be accompanied by clear and prominent disclosures and written agreements and oversight when compensation is involved. Even though the general testimonial prohibition will be lifted, the prohibitions for advertisements still apply. So RIAs will need to use testimonials and endorsements that are not materially misleading, do not rise to the level of cherry-picking, and are otherwise fair and balanced. 

One takeaway from the rule release is advisors may use selected testimonials if they are accompanied by an explanation that the featured testimonial is not representative. Also, there must be a link to a complete list of testimonials about the adviser. Depending on how these requirements are interpreted by the SEC over time, it may complicate the practical use of testimonials and endorsements. So proceed with caution and stay tuned for further guidance. 

Tip #4: Audit your privacy & cookies consent 

Review your digital policies and workflow to ensure your digital marketing adheres to evolving enforcement and regulatory trends requiring written evidence of consent to use clients’ and prospects’ information. Confirm you have evidence of the "I accept" buttons on your website and confirm your unsubscribe process is clear and effective. (See Landmark eprivacy Directive Cases resulting in over $135 million in fines.)

Tip #5: Review use of data 

Personally identifiable data is quickly becoming an outdated standard. New requirements are based on data that can be linked or otherwise used to discern identity. Confirm you protect confidential data even if it doesn't directly disclose a client or prospect’s name. As covered below, if you don't have a data map, make one in the first quarter. It will also protect you in the event of a data incident or breach. (See California Privacy Rights Act of 2020; Proposed Federal Privacy Legislation)  

Tip #6: Consider privacy cybersecurity & marketing together

Marketing and business development is one of the highest-profile privacy and cybersecurity risks. Don’t silo your marketing efforts. Consider whether you are ready for regulatory or legal review of cybersecurity and data protection risk assessment, data map, vendor management, and policies and training. (See the overview of some of the 2020 regulatory notices about the protection of data and systems at risk as you market and grow.)

Tip #7: Redesign your marketing approval process 

Even though the new SEC Marketing Rule ultimately does not include the proposed compliance pre-approval process, it will be challenging to meet the new requirements without a reasonable compliance process. You must show each statement of fact is support by written evidence, and your firm is adhering to the new record retention requirements. 

Under the new rule, the Form ADV will also need to be revised to disclose approved marketing practices. Ensure you have a compliance program that keeps up with business development efforts for solicitation - referred to as "promotion" under the new SEC rule - as well as written collateral used online and in meetings. A refresh of the marketing approval process may also trigger the need to update social media procedures too.  

Compliance takeaways

In preparing for routine inquiries or examinations, your efforts should also benefit your client satisfaction rates. A solid compliance program will show you understand the market and are prepared to adjust and protect your brand and clients.   

At a minimum, RIAs should consider the following quick compliance check-up items: 

  • An audit of all marketing collateral -- confirming written evidence to support statements about performance, projections, targets, and referrals
  • The use of digital tools -- helping adhere to the increasing regulatory and market expectations for transparency and objective support for marketing and proposal work
  • The addition of a risk assessment and data map -- so current and anticipated use of client and prospect data is protected as expected and in adherence with state, federal, and non-U.S. regulatory, risk, and legal requirements. 

Are you taking the proper steps to remain compliant? Feel free to reach out if you have any questions.

This blog is sponsored by AdvisorEngine Inc. The information, data and opinions in this commentary are as of the publication date, unless otherwise noted, and subject to change. This material is provided for informational purposes only and should not be considered a recommendation to use AdvisorEngine or deemed to be a specific offer to sell or provide, or a specific invitation to apply for, any financial product, instrument or service that may be mentioned. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor. Opinions and forecasts discussed are those of the author, do not necessarily reflect the views of AdvisorEngine and are subject to change without notice. AdvisorEngine makes no representations as to the accuracy, completeness and validity of any statements made and will not be liable for any errors, omissions or representations. As a technology company, AdvisorEngine provides access to award-winning tools and will be compensated for providing such access. AdvisorEngine does not provide broker-dealer, custodian, investment advice or related investment services.

Beth Haddock

Beth Haddock

Beth Haddock is Managing Partner at Warburton Advisers, a compliance consultancy firm, and author of Triple Bottom-line Compliance – How to Deliver Protection, Productivity and Impact. AdvisorEngine is a client of Warburton Advisers.


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