Few RIAs Using Testimonials, Reviews: Study

 Commentary  May 17, 2022 at 07:44 AM  Share & Print

What You Need to Know

  • Over 64% of RIAs failed to complete Form ADV Item 5.L, which would give them previously prohibited marketing opportunities.

  • Only 2.3% of firms that completed Item 5.L use testimonials.

  • Third-party ratings and reviews will spur the emergence of wealth tech platforms that serve the needs of investors and advisors alike, according to Indyfin.

Some 14,000 RIAs filed a Form ADV amendment with the Securities and Exchange Commission as of March, but 64% of them failed to complete Item 5.L., which would enable them to leverage new marketing opportunities under the new marketing rule, the fintech company Indyfin reported Tuesday.

This demonstrates that the industry is unprepared for the November deadline for compliance, it said.

“What our research has shown is that there is still uncertainty and confusion within firms on how to best utilize the provisions of the rule to best position their firms for growth,” Indyfin’s founder, Akshay Singh, said in a statement.

“The new SEC marketing rule is a once-in-a-generation chance to differentiate themselves and to modernize how advisors can market their firms, particularly when it comes to digital channels, one of the fastest-growing channels available.”

Opportunities Go Begging

Indyfin’s research found that only 2.3% of firms that completed the ADV Item 5.L. use testimonials, even though testimonials are now available for use. Testimonials enable an advisor’s clients to share how the firm is meeting their needs and why they love working with it.

For many other service industries, client testimonials provide the social proof needed to make purchase and partnership decisions, Indyfin said.

In addition, just 2.1% of RIAs in the study that have completed Item 5.L. reported that they use endorsements in marketing their business.

Endorsements are a provision of the SEC’s new marketing rule whereby parties other than clients can review an advisor — a huge opportunity for advisors to differentiate their firms, Indyfin said.

After issuing a request for information on complex products that drew widespread criticism from the investment industry, the Financial Industry Regulatory Authority will consider the comments carefully before making any changes to regulation, the group’s CEO says.

“Our minds are not made up about this,” FINRA CEO Robert Cook told on Monday at the regulator’s annual conference in Washington.

FINRA took comments until May 9 on which products should be classified as “complex.”

“It’s an important topic,” Cook said. “We’ve received a lot of comments and we’re going to go through them very carefully and think about whether any further action is appropriate — and what that would look like.”

RIA founder turned crypto evangelist Ric Edelman told FINRA in his comment letter that FINRA’s ideas are “fatally flawed” and “completely unworkable.”

As set out in Regulatory Notice 22-08, FINRA could limit retail investor access to many mutual funds, ETFs and closed-end funds, according to Dave Nadig, financial futurist at ETF Trends.

If FINRA moves ahead with a proposal, Cook said that it would include an economic analysis and that the broker-dealer regulator would put that plan through a formal comment period. All FINRA rules must be approved by the Securities and Exchange Commission.

“This is stepping back early on in the process and soliciting input on the space in general and we look forward to reading the comment letters to see how [broker-dealers] currently market these products and whether any adjustments may be needed,” Cook said.

“There’s an important balance to be struck between preserving investor choice and creating space for product innovation and at the same time we have adequate protections for investors.”

Pictured: FINRA CEO Robert Cook.


European Compliance Association

European Compliance Association

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