The SEC’s “new” marketing rule has been in effect since November 2022. The updated regulation provides clear guidelines on the acceptable use of testimonials and endorsements for financial advisors. While the regulation isn’t strictly about online ratings and reviews, the possibility is clear to anyone paying attention.
Consumers love online reviews
Testimonials in the form of star ratings, accompanied by short reviews, have become the norm for consumers in most industries. From shopping on Amazon to booking accommodation on Airbnb to selecting healthcare professionals on hospital websites, online reviews have become indispensable in the decision-making process. In fact, a 2022 BrightLocal survey found that 98% of consumers read online reviews about local businesses and 81% thought reviews were important when it came to financial and legal services.
Do consultants have to worry when reviews come in?
With valuations picking up in other sectors, financial advisors may have concerns about the potential impact. A parallel can be drawn between the current landscape of financial advisors and the medical landscape in 2014. Initially, there were few online doctor reviews and many doctors preferred this. But, as expected, some patients were self-motivated to tell their doctors about their experiences. Although hundreds of patients were treated each month, a few “loud voices” initially had a disproportionate impact on these doctors’ online reputations. This scenario often resulted in an inaccurate representation of the overall patient experience, which displeased physicians.
Now that we are in the early stages of reviews for financial advisors, we can expect a similar early adoption trend for some advisors and this uncertainty may be a cause for concern.
Advisors cannot prevent customers from leaving reviews
Regardless of the consultants’ plans for testimonials, clients have the freedom to write reviews online. There are already Google Business Profiles and various online directories for financial advisors that are actively collecting reviews of advisors. These websites recognize the impact of reviews on search engines and consumers. If any of these sites can accumulate a critical mass of advisor reviews, they will likely be rewarded with a significant increase in site traffic. Unfortunately, many of these websites lack mechanisms to ensure that the reviewers are genuine clients of the consultants being reviewed.
The “wait and see” approach carries risks
Given the situation outlined above, there are three main risks associated with adopting a passive “wait and see” approach to online reviews:
- A single negative review might initially influence or define an advisor’s online reputation. When advisors are concerned that a client or former client might have a problem with the issue, there’s always a slim chance that he or she will unearth dirty laundry in the form of an online review.
- Directory sites are becoming increasingly influential. When a directory site is able to collect a meaningful number of reviews about a particular consultant (or that consultant’s competitors), that directory site begins to have significant bargaining power over the consultants concerned.
- The competitors could gain a clear advantage. Many advisors start out with reviews, and in six to 12 months, passive advisors could be at a significant disadvantage in the world of online reputation. Imagine a prospect receiving recommendations for both a consultant and their main competitor. When a prospect sees dozens of positive reviews for the competitor but finds nothing when searching for reviews for the consultant, the “wait and see” consultant will put up an uphill battle to win that deal. A 2021 financial planning magazine The study reinforced this concept, reporting “nearly half [of respondents] Advisors were excluded from consideration based on what they saw or could not find in their digital footprints.”
Customers are extremely satisfied. So encourage them to share their experiences
Rather than relying on directory sites, advisors can proactively collect feedback from all of their clients within a closed system. All collected reviews can then be shared on the consultant’s own website, which offers several advantages:
- Only verified customers can leave reviews: With an invitation-only approach, advisors can ensure that only their customers can leave reviews.
- Minimize the risk of some loud voices: Advisors can wait to post their reviews until they receive a minimum number of responses. This can be as little as five to ten reviews, but it ensures there isn’t a single outlier review claiming to represent the typical customer experience.
- Compliance is at the table: Because all reviews can be checked prior to posting compliance, it’s easy to ensure that anything that meets the definition of “advertisement” is in fact compliant.
Transparency creates trust
While advisors may encounter reviews that are unsuitable for posting due to sensitive information, profanity, or unsubstantiated claims, consumers will trust reviews, and regulators will, as long as advisors are transparent about their review process and clearly communicate their posting guidelines, they will be satisfied .
Note the SEC’s current risk warning
It’s worth noting that the SEC recently issued one risk warning to the SEC Marketing Rule, suggesting that consultants are beginning to incorporate testimonials into their marketing efforts, and some have been observed doing so in a non-compliant manner. To mitigate compliance risks, advisors should seek partners who take a compliance-first approach to collecting and displaying client testimonials.
Bottom line: Worrying is a waste of time
Instead of worrying about when online reviews appear and what opinions they might contain, advisors can now take steps to ensure the voices of their happy and satisfied customers are captured and displayed on their own websites in a legally compliant manner. This approach not only reduces the risk of negative reviews having an undue impact on advisors’ online presence, but also provides a powerful marketing advantage. Online reviews enhance advisors’ search engine optimization (SEO) and provide consumers with valuable information to improve their online presence influence the consultant selection process. Instead of worrying, it’s time for advisors to take action and start reaping the benefits of online reviews.
Whit Lanier is the founder and CEO of Reinforce reviews – a platform focused on helping financial advisors accept online reviews on their own terms. His previous start-up was a leading healthcare technology provider that enabled hospitals to publish verified patient ratings and reviews, processing over 50 million patient reviews by 2021.