Advisors must be able to tell the difference between opinion and fact.
You want financial advisors to talk freely when you meet with them. You want straightforward guidance, not ambiguous hedging.
In a private discussion, many advisors will be forthright. However, there are stringent guidelines that dictate what they may and cannot say when they promote their services, produce content for social media, or offer market commentary for the general public.
The firm’s compliance team has probably approved an adviser’s marketing materials. This holds true for an adviser’s public presentations, email newsletters, and the firm’s website content and client testimonials.
Regulators are observing. This includes states in the US, each of which has its own securities laws, as well as federal organizations like the Securities and Exchange Commission and the Financial Industry Regulatory Authority.
The regulations extend beyond truthful advertising. They cover promises of investment performance, client confidentiality, appropriate disclosures, and marketing content recordkeeping obligations.
Liz Watkins, chief compliance officer of Crescent Grove Advisors in Lake Forest, Illinois, stated, “Investors should understand that any content that comes from advisers has to go through a compliance officer.” “This protects the firm’s clients so that they get the best information possible.”
To assist advisers in crafting message that complies with industry standards, numerous firms develop compliance checklists, flow charts, and other training materials. This includes their opinions about the markets, their track record as portfolio managers, and what they can and cannot disclose about their clients.
You may be wondering what the compliance people leave out of all these requirements. What qualifies as too promotional versus legitimate?
“Advisers have to substantiate any claim with backup support,” Watkins stated. “They are not permitted to make false, inflated, or unjustified assertions. Additionally, they shouldn’t endorse any products or offer particular advice in their market analysis.
Superlatives are avoided by counselors thanks to compliance specialists. They’ll exclude statements like “This is the greatest investment” or “You’re guaranteed not to lose money.”
Instead, according to Watkins, “we may highlight data to show that an investment product might be great rather than tell that it’s great.”
Eight words to be aware of
In marketing materials, the following eight terms are typically prohibited: best, worst, most, least, highest, lowest, always, and never.
Reporting on hypothetical performance is particularly delicate. Advisers could make the mistake of estimating fictitious outcomes over a given period of time while disregarding guidelines intended to guarantee that the performance only applies in a particular, clearly defined scenario.
Advisors must specify which assumptions, variables, or hazards could impact performance when presenting any scenario. Some compliance officers just dismiss any reference to potential performance outcomes out of caution.
It’s normal to be curious about what lies ahead. However, don’t anticipate a bold forecast in your adviser’s email newsletter if you’re wondering how your investments might perform in the upcoming months or how markets will react to tariffs or growing geopolitical unrest.
According to Watkins, advisers are not permitted to mention any price target for an investment housed in a client account. Furthermore, they must not to rely their projections on the expected performance of their company.
Unguarded advisers may find themselves in regulatory hot water even when speaking privately. Advisors are taught by compliance specialists to refrain from sharing any confidential information about other clients, positions, or trading tactics.
Any marketing that uses client testimonials or nonclient endorsements must include certain disclosures. Additionally, compliance officers tell advisers not to disparage competitors or other third parties, even though they are not breaking any rules if they highlight how their company sets itself apart from competitors.
Social media prudence
The social media presence of advisers is one of the most difficult parts of compliance. Typically, advisory firms have written policies that regulate marketing, including the use of social media.
“It’s tricky because you have the firm’s social media and the adviser’s personal social media,” Watkins stated. “The majority of compliance [officers] examine both. We have authority over the firm’s social media, so compliance is easier,” she added, but an adviser who is engaged in their own digital space may run afoul of the law.
Advisors might, for example, rashly push “send” on a post regarding the tech industry on their personal social media account (“I bet you the ‘Magnificent Seven’ stocks will outperform next week”). They may also boast about their own research’s superiority (“Our picks keep crushing it!”).
As you might have noticed, advisers usually include a footnote to identify the source of any information they mention from third parties. The purpose of that regulation is to stop them from making untrue statements.
“Advisers need to clearly distinguish between fact and opinion,” Watkins stated. Occasionally, individuals become so enamored with a concept and form such a strong believe in their viewpoint that they declare it to be true. She stated that while it’s acceptable to have strong beliefs, one should refrain from overstating them as unquestionable truths.
