The Advertising Rule FAQs [Effective November 4th]

What is the new definition of “advertising?”

Advertising is now being defined as any direct or indirect communication that offers an advisor’s services regarding securities to prospective clients or new services to existing clients (excluding one-on-one communication). This means that any communication sent to more than one client marketing advisory services, marketing performance or recommending securities would be considered advertising. All advertising requires pre-approval before use.

What if the communication sent to more than one client is educational only and does not offer or market any services?

If the content of the communication is purely educational in nature, it will only require pre-approval if it crosses our existing threshold of 25 clients or prospects within a 30-day period. Once that threshold is crossed, it is considered mass communication and will still require pre-approval before use, regardless of the content.

Can we create reports to share with clients showing the performance of our recommended portfolios?

Any advisors wishing to market the performance of their portfolios, must be able to build three (3) years of composite history before being allowed to market that performance. Composites are an aggregation of actual performance of accounts assigned to a certain strategy on a month over month basis. This is a more accurate representation of the performance of your strategies over time than a back tested or hypothetical calculation based on your ideal portfolio at a certain point in time.

Is hypothetical performance allowed when using a proposal tool for an individual client or prospect?

Yes, the SEC has identified an exception to their restrictions on the use of hypothetical performance when used to compare hypothetical performance of a proposed portfolio against a client’s or prospect’s existing portfolio. If there is no comparison to the individual’s existing holdings, no hypothetical performance can be displayed.

If I build composite history, what can I do with it?

If an advisor works with our team to build out composite history for his or her strategies, we can pull the data into Morningstar to create Fact Sheets on a quarterly basis that can be shared with clients or prospects. The performance will be actual performance and not hypothetical, so it can be marketed.

Are we allowed to use testimonials or endorsements once the rule goes into effect?

YES! Testimonials and endorsements will now be allowed to be used. Each testimonial or endorsement will have to be reviewed just like any other marketing, and custom disclosures will have to be provided detailing the facts and circumstances of the content. This may include disclosure on whether the client or non-client is related to anyone in the firm, how long they have been a client, and any other relevant material information.

Can we offer gift cards or other treats for testimonials or endorsements?

No. Advisors are not allowed to solicit testimonials or endorsements with the promise of any sort of compensation. Testimonials are not allowed to be compensated in any way, as this is an inherent conflict of interest. Endorsements cannot be compensated unless they follow our standard Solicitor and Referrer policy. In this case, Mutual will compensate the endorser on behalf of the advisor, as the advisor is not able to compensate the endorser directly.

What is the difference between a testimonial and endorsement?

Testimonials are from clients and endorsements are from non-clients.

Do I have any recourse if someone leaves a bad review of me on Google Reviews?

If the review is inappropriate or the claims being made are unfounded, you can claim the Google Review site and submit a request to Compliance to approve the removal of the review. The reviews or posts on dynamic posting sites like Google Reviews, other review sites or social media must be maintained as fair and balanced. This does not mean you must have as many negative reviews as positive reviews, but there must be well documented, objective justification for why the review or post should be removed—and why it is not considered fair and balanced. Therefore, Compliance will review the facts and circumstances of the post and any evidence you provide to help document the objective justification before the post is removed. Any site you wish to curate must be archived through Smarsh.