How far can RIAs go with advertisements?

I rarely go to concerts, because I’m a couch potato and most musicians from my youth are dead. James Taylor and Carole King, however, are alive and well and were performing at an arena in Fort Lauderdale. They were great, of course, but I made a startling discovery: There are now advertisements on urinals. In this particular case, it was a law firm advertising on the urinal.

Back when I went to law school, attorneys didn’t advertise on television, let alone on urinals. Aside from television commercials that make me cringe, the ABA Journal recently reported that one law firm advertised its services on a hot dog cart outside the courthouse, which seems extremely dignified in comparison to a urinal advertisement.

Will RIAs stoop to the level of lawyers?

Since I have no influence on how lawyers advertise, I’ll stick with advice for registered investment advisers (RIAs). Let’s take a not-too-serious look at possible RIA advertisements and whether they would comply with Rule 206(4)-1 under the Investment Advisers Act of 1940.

Because of Rule 206(4)-1, RIA advertisements may not use testimonials regarding the advisory firm or its services. Rule 206(4)-1 also bars ads that are false or misleading in any way. In addition, the rule contains restrictions on references to past specific recommendations. For example, you are not permitted to advertise that you told investors to sell B-P before the oil spill caused the stock to plunge, unless you offer to provide a list of all of your recommendations for the past year.

Space limitations often make it difficult to advertise in a manner that is not false or misleading. With many RIA advertisements, disclosures are needed to satisfy the standard set forth in Rule 206(4)-1. In any ad that refers to the RIA’s performance, you must include numerous disclosures recommended by the SEC in its Clover Capital no-action letter. I have the feeling that it will be difficult to fit disclosures if you advertise on an air sickness bag, a park bench, a bus, or an airplane flying with a banner ad. I doubt these disclosures will fit, even if you advertise on the electronic sign attached to the Goodyear blimp.

Don’t forget you’re a fiduciary

An investment adviser asked me recently why he needed to state the date when his firm received a high rating from a publication. He reasoned that restaurants are permitted to say, “Zagat rated” without stating the date or providing further details, so why shouldn’t RIAs take a similar approach when advertising third-party rankings. The very simple answer is that RIAs owe a fiduciary duty and restaurants don’t.

Whenever you advertise, you must keep your fiduciary duty in mind. Because RIAs are fiduciaries, they are held to an extremely high standard. That fiduciary duty extends to their advertising and marketing materials. You must consider your fiduciary obligations, as well as Rule 206(4)-1, when using any form of advertising, whether you’re marketing yourself using social media, YouTube, a television commercial, or a blog posting.

An ad doesn’t always have to be wordy to satisfy your obligations as a fiduciary. You can get your firm’s name out there by sponsoring a little league team or a stretch of highway. One RIA donated an hour of financial planning time to a charity auction, and the firm’s name was mentioned in the booklet given to all attendees at the event.

But do consider carefully where your name shows up. In the movie, “I Love You, Man,” Paul Rudd’s friend helped him to promote his real estate business by placing ads on urinal cakes. I’m hoping that the next time I go to a concert, I won’t see this kind of ad for a real estate agent, law firm or an RIA.

Les Abromovitz is a senior consultant with National Compliance Services, Inc. Les, an attorney, is the author of Growing Within the Lines: The Investment Adviser’s Advertising and Marketing Compliance Guide (Available on Amazon.com or through NationalUnderwriterStore.com). He can be reached at 561-330-7645, Ext. 213, or at LAbromovitz@ncsonline.com.

Les is working on a column about funny RIA ads – both real and imagined. He’ll even comment on whether they are compliant. For example, maybe an RIA can advertise on a taxi or IARs’ cars can be painted with the firm’s name. If you have an idea for a funny ad for an RIA, e-mail him.