The “new” SEC marketing rule, which has been in effect since November 2022, has provided financial advisors with clear guidelines on the use of testimonials and endorsements. While the regulation doesn’t specifically address online ratings and reviews, it presents a significant opportunity for advisors in the digital age.
Consumers have come to rely heavily on online reviews in their decision-making process across various industries. From shopping on Amazon to booking accommodations on Airbnb, and even selecting healthcare professionals on hospital websites, online reviews have become indispensable. A 2022 BrightLocal survey found that 98% of consumers read online reviews about local businesses, with 81% considering reviews important when it came to financial and legal services.
Given the prevalence of reviews in other sectors, financial advisors may have concerns about the potential impact of online reviews. A parallel can be drawn between the current landscape for financial advisors and the physician landscape in 2014. Initially, there were few online ratings for physicians, and many doctors preferred it that way. However, a few patients took it upon themselves to share their experiences, leading to a disproportionate impact on the online reputation of those physicians. This scenario often resulted in an inaccurate representation of the overall patient experience, which displeased physicians.
As we are now in the early days of reviews for financial advisors, a similar trend of early adoption can be expected. This uncertainty can cause concern for advisors who are unsure about the potential outcomes.
One important aspect to note is that advisors cannot prevent clients from leaving reviews online. Google Business Profiles and various online directories for financial advisors already exist, actively collecting reviews about advisors. These sites recognize the influence reviews hold over search engines and consumers. However, many of these sites lack mechanisms to ensure that reviewers are genuine clients of the advisors being reviewed.
There are three primary risks associated with adopting a passive “wait and see” approach towards online reviews. First, a single negative review could initially color or define an advisor’s online reputation. Second, directory sites that collect a significant number of reviews about a specific advisor or their competitors gain significant bargaining power. Third, competitors who actively collect positive reviews may gain a significant head start, putting passive advisors at a disadvantage.
To mitigate these risks, advisors can proactively request feedback from all their clients within a closed-loop system. This approach ensures that only verified clients can leave reviews and minimizes the risk of a few loud voices disproportionately affecting an advisor’s online reputation. Compliance can also evaluate all reviews before they are published, ensuring adherence to advertising regulations.
While advisors may come across reviews that are not fit for publication due to sensitive information or unsubstantiated claims, as long as they are transparent about their review collection process and publishing policy, consumers will trust the reviews, and regulators will be satisfied.
It is worth noting that the SEC recently issued a risk alert on the SEC Marketing Rule, highlighting that some advisors have incorporated testimonials into their marketing efforts in a non-compliant manner. To mitigate compliance risks, advisors should partner with platforms that prioritize compliance when collecting and displaying client testimonials.
Instead of worrying about when online reviews will appear and what sentiments they might contain, advisors can take action today to ensure that the voices of their happy and satisfied clients are captured and displayed on their own websites in a compliant way. This approach not only mitigates the risk of negative reviews having an outsized impact on advisors’ online presence but also provides a powerful marketing asset. Online reviews improve advisors’ search engine optimization (SEO) and provide valuable information to consumers in their advisor selection process. It’s time for advisors to embrace the benefits of online reviews and take proactive steps to leverage them.
