‘Like’ Me
Late last December, the Securities and Exchange Commission (SEC) updated the Investment Advisers Act of 1940 rules governing investment advisers’ use of advertisements and compensation to solicitors. The revision, Rule 206(4)-1, also known as the “marketing rule,” took effect on May 4. It likely will lead to endorsements and testimonials becoming a staple part of advisers’ advertising and marketing programs.
The changes allow advisers to enhance how they self-promote in communications in the age of social media. But the new rules pose challenges as well as opportunities because some advisory firms could lack experience soliciting endorsements and testimonials. How do you decide which clients or potential spokespersons to approach, and how do you get their permission while complying with the new rule?
Off to a Slow Start
As of mid-July, industry response to the rule has been muted. Rebecca Hourihan, founder and chief marketing officer of 401(k) Marketing LLC, which helps advisers market their expertise, in San Diego, says her firm is waiting for home office compliance departments to provide formal guidance about how their adviser-affiliates may proceed. “We haven’t gotten a lot of feedback yet on how we can collect testimonials or endorsements and then distribute them,” she says. “And what types of content can we distribute them through? So, it’s a little bit of a holding pattern for us.”
Joshua Deringer, a Philadelphia-based partner with law firm Faegre Drinker Biddle & Reath LLP, cites several possible reasons that asking clients to weigh in has been slow. The rule was released during a transition between presidential administrations, and regulatory agency rules adopted before the inauguration were put on hold. Consequently, it is “not fully baked yet in any of the shops,” Deringer explains. “They’re working on what they’re going to do and what policies and procedures they’ll adopt.”
Another factor could be the perceived risk of being among the first organizations to experiment with the new rule, a status that is more likely to attract SEC scrutiny. “You don’t want to procrastinate and be scrambling at the last minute to put in place policies and procedures,” says Deringer. “But at the same time, being the first to adopt is not an advantage either. So, I think everybody’s in a little bit of a waiting game, looking at what the industry is going to do and how [it proceeds].”
How Do We Do This?
Compliance attorneys will issue detailed guidelines eventually, giving advisers a better sense of what they can and cannot do under the marketing rule. Implementing the new paradigm raises practical questions, though. For instance, which clients should you approach for a testimonial, and how should you pose the question? Hourihan emphasizes the need to avoid forcing the issue or making it feel contrived, whether you are discussing social media or traditional advertising methods. “I would say advisers should sit down and pick their top five favorite clients,” she says. “The next time they’re in a regular plan review meeting, add it as an agenda item, and then just bring it up and explain that the industry’s changed. ‘Social media is here to stay. Would you be willing to provide us with a testimonial based on your working experience?’”
Marie Swift, founder and CEO of Impact Communications Inc. in Leawood, Kansas, suggests an alternate, more wide-open approach. She reports that, in her attendance of webinars with industry compliance professionals, some experts have suggested approaching not only a firm’s best clients. Instead, Impact’s advice is to offer testimonial opportunities to all of the firm’s clients via email or a survey mechanism, or to add their comments to LinkedIn, Facebook and other business pages and directory listings such as Yelp and Google My Business.
That may sound risky, but Swift points out the inevitable difficulty of squelching bad online reviews. “The reality is that anyone can now go online and post their comments about the firm,” she observes. “So, we all need to get used to the new digital realities and really work hard to ensure that clients are being well-served, that perceptions are positive, that issues are resolved quickly and amicably, etc.”
While seeing negative comments on an online forum always makes good businesspeople cringe, it is actually a gift, Swift asserts. She says there have been studies showing that companies with a few marginal or negative reviews are seen as more credible and real than those with 100% positive reviews. “In addition, a good reality check is always helpful; hopefully the negative or marginal comment does not surprise the adviser, and perhaps the issue can be mitigated and new comments added to the online forum,” Swift says.
Having a written social media policy and a plan for what to do in the event of less-than-stellar comments is a good idea, she continues. If you decide to edit comments, be sure to review the rule’s marketing guidelines. For instance, if you delete or suppress negative comments or prioritize positive comments, the SEC will attribute the comments to you as indirect statements. Fortunately, per the rule, you may edit “profane, unlawful or other such content according to a neutral pre-existing policy as the adviser adopting the content.”
Mind the Rules
Deringer says that the SEC generally did a good job of establishing a principles-based approach with the new rule vs. the prior prescriptive prohibitions. This will allow compliance departments rather than the SEC staff to make judgments “in terms of what should and should not be allowed,” he says. However, the rule does spell out specific prohibitions and disclosure requirements—essentially honesty-in-advertising guidelines. Prohibited are:
- Untrue statements or omissions;
- Unsubstantiated material statements of fact;
- Untrue or misleading implications or inferences;
- A less than fair and balanced treatment of material risks or material limitations;
- Cherry picking; and
- Otherwise, materially misleading items.
Endorsements and testimonials also have their own required disclosures, covering compensation and material conflicts of interest. Obviously, all marketing communications will continue to need review. “If the firm is planning to put one or two comments, with attribution to the client, in a brochure or a white paper or on its website, check with a compliance professional to ensure that this is permitted and that all of the proper disclosure statements are included,” Swift recommends. “Asking the client’s permission and getting confirmation in an email exchange will likely suffice in a compliance audit.”
Another possible catch can arise if you have endorsement arrangements that were established under the previous cash solicitation rule, because those arrangements are now covered under 206(4)-1 instead of a separate rule. Deringer recommends that firms with prior solicitation contracts in place review them to determine whether they need to renegotiate and rewrite the agreements to comply with the new rule.
Looking Ahead
Larger adviser firms might have the ability to approach name brand companies, provided that the existing master services agreement allows the adviser to name the client publicly, Hourihan suggests. “I think that if you have a name brand company [as a client], it’s such a wonderful way to show how much experience and trust you really have as an experienced adviser,” she says.
For the largest firms, Hourihan imagines the possibility of celebrity endorsements. “We’re going to get Hollywood to come into our industry and to be the voices,” she speculates. “We’re going to have Robert Downey Jr. hosting financial wellness classes, or we’ll have Salma Hayek doing a whole presentation on mortgages.”
Smaller advisory businesses probably lack the resources to land top-tier endorsements. Nonetheless, getting testimonials from well-known businesses in the adviser’s locale or target industry could prove more influential. A solid recommendation from the human resources (HR) director who oversees her company plan’s operations could carry more weight with her peers than a paid celebrity endorsement, and it will certainly cost less, even if it lacks star appeal.
| Defining Your Target Market |
So many plan prospects—where to begin? According to the Investment Company Institute (ICI), last year there were about 600,000 401(k) plans in the U.S., with roughly 60 million active participants and millions of former employees and retirees. How do you decide where to focus your advertising and marketing efforts for optimal results? Where to AimYou are not required to define a target market, of course, but failing to do so raises the risk of wasting time and money trying to attract prospects that are not a good match for your firm. Marie Swift of Impact Communications Inc., maintains: “Prospective clients want to know that the provider specializes in working with clients that have similar sets of needs and complexities.” Rebecca Hourihan of 401(k) Marketing LLC gives an example of using geography for market identification; she describes the approach as “Own your backyard.” “If you were to physically plant a flag in your backyard, what would that geographic territory be?” she asks advisers to consider when identifying a target market. “Become known within that area as the expert, the go-to retirement plan adviser,” she explains. “That’s the first step, especially if you’re a smaller retirement plan advisory office. You want to have really strong brand presence and awareness in your ‘backyard.’” Advisory firms in areas with concentrations of particular professions or industries might target a relatively narrow market niche. For example, some cities have large hospitals that have led to the establishment of a local medical ecosystem that includes physician group practices, medical labs and other health service providers. Developing in-depth knowledge of a specific niche’s business model and retirement plan requirements can help establish an adviser’s expertise and reputation in that segment. In turn, that expertise could also facilitate business development beyond the local market. Abbey Yvon, senior vice-president, communications at Vestwell in New York City, agrees that while there are different reasons for segmenting by geography, size, industry or otherwise, it is important to define the audience and determine what message will have the most resonance. For example, many advisers are currently segmenting by geography and size as a way to capitalize on the state-plan mandates. In doing so, she says, there is a clear message to their audience, as well as well-defined parameters for advertising—e.g., statewide publications for small businesses, LinkedIn ads by geography and size, etc. But it is also key to leverage relationships with centers of influence, Yvon says, and those connections can influence where and how advisers market. For instance, if an adviser has a relationship with a payroll provider, as many of Vestwell’s adviser-partners do, it benefits them to target that market. “If the payroll provider focuses on a specific industry sector, the adviser can then advertise in that industry’s publications, attend its industry events, and join appropriate industry social networks to help the adviser assimilate into the community and increase brand awareness,” Yvon says. Regardless of who you market to, it is important to have a clear and differentiated message, Yvon suggests. Your website should have targeted landing pages for each audience, and your marketing materials should be reflective of what you can offer that others cannot. For example, everyone claims to be cheaper and more effective, but what else in terms of resolving pain points do you have to offer your targets? Yvon says. “Think about why your current clients turned to you. Or better yet … ask them! Annual surveys are a great way to understand your audience and be able to find more leads like them.” Multiple AvenuesOnce you have selected your target market, the next step is figuring out how to reach these prospects effectively, given your available resources. A marketing plan that includes tactical methods to get the word out—the media—along with the definitions of the market and the codification of key messages will provide a good road map for working toward a higher level of success, says Swift. A solid plan will utilize multiple approaches. Swift says. “At Impact Communications, we use the PESO model to create the right proportions of the paid, earned, shared and owned marketing components,” she says. Swift says the key with paid marketing is to place it where your target audience is likely to see it. Earned marketing focuses on creating media visibility, such as pitching your expertise and article ideas to publications that your market reads. Shared marketing uses social media and cross-media promotion. Considering the increased importance of social media in marketing, developing a social media policy and editorial calendar can make your efforts more productive. Owned marketing resources include your firm’s website and blog, both of which can be used to position your firm as a subject matter expert and thought leader, she says. —EM |
| Business Development |
Maybe you have the good “problem” of plan sponsors constantly approaching your firm and asking you to take them on as a client. You are already operating at full capacity, but they will gladly accept a spot on the waiting list. This is a nice fantasy, but the reality for most advisory firms is that there is no lack of competition for new business. Creating a business development plan and determining its elements can help you reach the right prospects. PLANADVISER asked several industry participants for their suggestions on how to do this. Rebecca Hourihan of 401(k) MarketingEvery one of our clients has a formal marketing plan, and this primarily focuses on content marketing, meetings, blog articles, newsletters, graphics and videos. Everything is tied with email communication to their target market lists and social media, as well. The goal for having content first is that you’re delivering value to your audience over and over again with different topics—for example, the SECURE [Setting Every Community Up for Retirement Enhancement] Act last year. Now we’re talking about financial wellness, fiduciary plan governance and Cycle 3 restatements[—a Department of Labor (DOL)-required periodic update of retirement plan documents]. You’re constantly giving your clients or prospects and centers of influence great information, and then you’re tying that together through email and social media to maximize your distribution. If you add testimonials in the future, you could have a landing page on the website devoted to that theme. An adviser could have a landing page that talks about financial wellness, for example, and pick three different clients who have given a testimonial about how great this adviser is with supporting plan participants on their journey toward retirement. Marie Swift of Impact CommunicationsThe leadership team at the advisory firm should schedule an annual meeting to internally review the three M’s: market, messaging, mediums. Targeting the right market—the “who do we serve and why?”—should precede developing strategic messaging that resonates and aligns with the targeted entities. Demographics, such as plan size and geography, as well as psychographics, such as company culture and leadership style, should be considered during the target market exercise. Abbey Yvon of VestwellOne way we’ve seen advisers have tremendous success is by partnering with other centers of influence, be it payroll providers, accountants, benefits advisers, associations or otherwise. In order to make the most of these relationships, there are a few important steps to take:
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Art by Dalbert B. Vilarino