Can Financial Advisors Use Testimonials?

It’s my biggest criticism about many Financial Advisors that I talk with, an inability to “empty their cup” and look at their business with fresh eyes, especially in light of new SEC rules and the ability to use testimonials.

I was spending my weekly “wondering around” time in Barnes and Noble (sadly didn’t have time to head over to the “Tattered Cover”) browsing new books, magazines, and just working on discovering “New Stuff.”

I’ve been “power reading” each and every book ever written (that I could locate) on advertising, sales, marketing, and practice management for Financial Advisors. Needing a bit of a break from that quest I’ve shifted to some stuff about all the “cultural craziness” going on. One that I enjoyed was “The Madness of Crowds.” I also picked up the latest “Rolling Stone” with an excellent article on a favorite author (oh yeah, and Drummer for RUSH) Neil Peart (RIP.)

Anyway, I stumbled across “Think Again” by Adam Grant. I haven’t read it yet but if the cover notes are any indication it looks to be excellent. Literally the first sentence is:

Intelligence is usually seen as the ability to think and learn, but in a rapidly changing world, there’s another set of cognitive skills that might matter more: the ability to rethink and unlearn.” In our daily lives, too many of us favor the comfort of conviction over the discomfort of doubt.”

Good stuff.

Wish I’d written that.

It’s my biggest criticism about many Financial Advisors that I talk with, an inability to “empty their cup” and look at their business with fresh eyes. That’s something that I’m exceedingly good at – being the objective one looking over your shoulder. Rethinking, watching for “New Stuff” on the horizon while avoiding chasing “magic pills.”

Anyway, we were having a conversation with one of those advisors who think they “know it all” this week.

He took exception to a suggestion in one of our “Free Reports” to use testimonials. You can receive that one on “How to Use Social Media for Financial Advisor’s” and several others at

He very confidently asserted – “Financial Advisors can’t use Testimonials.” Very sure of himself.

Well, maybe you have paid better attention than he has.

The SEC has changed what was a fairly ridiculous and dated rule that prohibited testimonials. One that made some advisors so “gun-shy” that they were afraid of “Likes” on facebook and afraid of claiming their google page for fear that some clients would comment on their practice (good or bad.)

If you didn’t know – here’s a summary of the new rule. It looks very similar to what Franchisors have to deal with for Franchise sales. I’ve had a lot of experience in both areas and am VERY aware of Compliance in everything we do.

The new law?

Basically, don’t lie. Don’t exaggerate. Support what you say. And, disclose if you’re paying someone to say nice things about you, and whether they are a client (or a paid actor)

Pretty simple.

Here’s the SEC’s summary of the new rules. For the full text see:


On Tuesday, Dec. 22, 2020, the Commission announced it had finalized reforms to modernize rules that govern investment adviser advertisements and compensation to solicitors under the Investment Advisers Act of 1940. Neither rule has been amended significantly since its adoption over forty years ago.

The amendments create a single rule that draws from and replaces the current advertising and cash solicitation rules, Rule 206(4)-1 and Rule 206(4)-3, respectively. The final rule is designed to comprehensively and efficiently regulate advisers’ marketing communications. The Commission has also made related amendments to Form ADV, the investment adviser registration form, and Rule 204-2, the books and records rule.

The Marketing Rule Under the Act

The amendments to Rule 206(4)-1 will replace the broadly drawn limitations and prescriptive or duplicative elements in the current rules with more principles-based provisions, as described below.

· Definition of Advertisement. The amended definition of “advertisement” contains two prongs: one that captures communications traditionally covered by the advertising rule and another that governs solicitation activities previously covered by the cash solicitation rule.

o First, the definition includes any direct or indirect communication an investment adviser makes that: (i) offers the investment adviser’s investment advisory services with regard to securities to prospective clients or private fund investors, or (ii) offers new investment advisory services with regard to securities to current clients or private fund investors. The first prong of the definition excludes most one-on-one communications and contains certain other exclusions.

o Second, the definition generally includes any endorsement or testimonial for which an adviser provides cash and non-cash compensation directly or indirectly (e.g., directed brokerage, awards or other prizes, and reduced advisory fees).

· General Prohibitions. The marketing rule will prohibit the following advertising practices:

o making an untrue statement of a material fact, or omitting a material fact necessary to make the statement made, in light of the circumstances under which it was made, not misleading;

o making a material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the Commission;

o including information that would reasonably be likely to cause an untrue or misleading implication or inference to be drawn concerning a material fact relating to the adviser;

o discussing any potential benefits without providing fair and balanced treatment of any associated material risks or limitations;

o referencing specific investment advice provided by the adviser that is not presented in a fair and balanced manner;

o including or excluding performance results, or presenting performance time periods, in a manner that is not fair and balanced; and

o including information that is otherwise materially misleading.

· Testimonials and Endorsements. The marketing rule prohibits the use of testimonials and endorsements in an advertisement, unless the adviser satisfies certain disclosure, oversight, and disqualification provisions:

Disclosure. Advertisements must clearly and prominently disclose whether the person giving the testimonial or endorsement (the “promoter”) is a client and whether the promoter is compensated. Additional disclosures are required regarding compensation and conflicts of interest. There are exceptions from the disclosure requirements for SEC-registered broker-dealers under certain circumstances. The rule will eliminate the current rule’s requirement that the adviser obtain from each investor acknowledgements of receipt of the disclosures.

Oversight and Written Agreement. An adviser that uses testimonials or endorsements in an advertisement must oversee compliance with the marketing rule. An adviser also must enter into a written agreement with promoters, except where the promoter is an affiliate of the adviser or the promoter receives de minimis compensation (i.e., $1,000 or less, or the equivalent value in non-cash compensation, during the preceding twelve months).

Disqualification. The rule prohibits certain “bad actors” from acting as promoters, subject to exceptions where other disqualification provisions apply.

· Third-Party Ratings. The rule prohibits the use of third-party ratings in an advertisement, unless the adviser provides disclosures and satisfies certain criteria pertaining to the preparation of the rating.

· Performance Information Generally. The rule prohibits including in any advertisement:

o gross performance, unless the advertisement also presents net performance;

o any performance results, unless they are provided for specific time periods in most circumstances;

o any statement that the Commission has approved or reviewed any calculation or presentation of performance results;

o performance results from fewer than all portfolios with substantially similar investment policies, objectives, and strategies as those being offered in the advertisement, with limited exceptions;

o performance results of a subset of investments extracted from a portfolio, unless the advertisement provides, or offers to provide promptly, the performance results of the total portfolio;

o hypothetical performance (which does not include performance generated by interactive analysis tools), unless the adviser adopts and implements policies and procedures reasonably designed to ensure that the performance is relevant to the likely financial situation and investment objectives of the intended audience and the adviser provides certain information underlying the hypothetical performance; and

o predecessor performance, unless there is appropriate similarity with regard to the personnel and accounts at the predecessor adviser and the personnel and accounts at the advertising adviser. In addition, the advertising adviser must include all relevant disclosures clearly and prominently in the advertisement.

Learn more about using client testimonials in your marketing by clicking here.

Stephen Oliver
Wealth Mastery