Even a photograph of a client may be viewed as a testimonial

October 19, 2011 — 3:11 AM UTC by Les Abromovitz, Guest Columnist


Newsletters published by registered investment advisors come in all shapes and sizes: from one page e-mails to glossy publications mailed to clients and prospective clients. In recent months, RIAs have used newsletters to calm clients and explain how their firms manage money amidst economic turmoil across the globe.

But whether a newsletter is an e-mail or a print publication, RIAs must avoid noncompliant content.

You should assume that a newsletter is an advertisement, even if it is only sent to clients. See: Advertising practices that can raise the hackles of regulators.

Generally, the newsletter that an RIA sends to its current clients is not an advertisement. If the intent of the newsletter is to market additional advisory services, however, it becomes one and must comply with advertising rules and regulations.

Implied testimonials

One RIA always ended its newsletter with a request that clients tell their friends about the firm, leaving little doubt that it was an advertisement. Most RIAs implement policies and procedures stating that all advertisements must be pre-approved by the firm’s compliance department.

If an RIA gives or sends a newsletter directly to prospective clients, it is definitely an advertisement. A great many advisory firms post their newsletters on their websites, leaving no doubt that they, too, are advertisements.

As an advertisement, a newsletter must comply with Rule 206(4)-1 under the Investment Advisers Act or similar regulations that apply to state-registered advisers.

Since RIAs tend to use newsletters for marketing, they should avoid mentioning clients by name or even showing photographs of them at events sponsored by the firm. These situations may violate advertising rules prohibiting testimonials. A photograph of a client at a luncheon, seminar or meeting may be viewed as an implied testimonial.

Avoid selective amnesia

Over the past few months, most RIA newsletters reassured clients that sanity would return to the markets at some point. While investment advisers should certainly project a calm demeanor in their dealings with clients, they should avoid making guarantees in newsletters. Aside from choosing your words carefully, it helps to include disclosures with every newsletter. One important disclosure is that every investment strategy has the potential for profit or loss.

Investment advisers should also avoid selective amnesia in their newsletters – the practice of remembering the recommended investments that did well and omitting those that performed terribly. For that reason, SEC and state advertising rules restrict references to past specific recommendations that were profitable to any person.

An RIA should not cherry-pick which copies of the newsletter will remain posted on the firm’s website. For example, it might be misleading for an RIA’s website to post only those newsletters where the advisor’s investment analysis was right on the money and to remove those publications where the firm’s guidance was far off the mark.

Keep current

RIAs should have a policy in place to ensure that website content does not become false or misleading as weeks and months go by. For example, a newsletter might indicate that an RIA is registered with the SEC, even though that is no longer the case after the firm makes its transition to state registration.

Let people know who wrote your newsletter

Some RIAs rely on ghostwriters or freelance writers to prepare the content of their newsletters. Many firms use content from third-party vendors. An RIA should disclose any and all of these practices. Without that disclosure, a client or prospective client might be misled about the advisor’s expertise and abilities.

Use plain English

RIA newsletters should be written in language that unsophisticated investors can understand. Phrases like “flattening the yield curve” may go over the heads of most clients. Aside from the compliance implications, a newsletter using this approach can alienate clients and prospective clients.

An article by Jonathan Burton in The Wall Street Journal, Five Signs That Your Adviser Is Failing You, takes a dim view of financial professionals who try to impress clients with industry lingo or assume that investors understand industry jargon. Securities examiners might also take a dim view of an RIA if the firm’s newsletter is not written in plain English.

Keep political views to yourself

Though it is not a compliance problem, it may be a bad idea for advisors to inject their political opinions into newsletters. Admittedly, it is often difficult to analyze the outlook for investments without discussing the impact of politics on the economy. Nevertheless, RIAs may hurt their marketing campaigns by offending clients who hold different political views regarding who and what caused the country’s economic problems.

Les Abromovitz, an attorney, can be reached at National Compliance Services, Inc. by calling 561-330-7645, Ext. 213, or by e-mailing him at labromovitz@ncsonline.com. Les is the author of “Growing Within the Lines: The Investment Adviser’s Advertising and Marketing Compliance Guide.”

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Share your thoughts and opinions with the author or other readers.


Maria Marsala said:

October 19, 2011 — 6:37 AM UTC

I’m confused. When it comes to articles, the main reason to hire a ghostwriter, copywriter, freelancer or editors is to have them use their writing expertise for your benefit. They can create articles for you, anywhere from scratch, to fixing something you wrote a draft of.

The whole reason to hire a ghost writer, for example, is to have them take their expertise (writing and researching) and take the topic you want to highlight, and write about the topic. Their contracts clearly state that upon payment, the article is yours to do what you wish. It’s your name that goes on the article, not theirs.

While the article, ebook, or book is being written, you approve it’s contents. Usually there are a few re-writes included in the price you pay.

Why should that information have to be disclosed? It’s kinda like having to disclose that you hired a coach to help you grow your business, or that an accountant named “x” takes care of your book keeping or taxes. Can you provide me with the rule regarding this?


Jennette Schlinke said:

October 19, 2011 — 11:05 AM UTC

It can imply you have knowledge or expertise that you may not have and it can be seen as misleading. Also, what if it implies you did research you didn’t do?

So many advisors I know seem inclined to apologize for not doing everything themselves – as though there isn’t a value-add from making the effort to find that solid market intelligence and share. It’s not a big deal to put something along the lines of “contents created by X and used with permission by ABC firm” and the reality is few clients look askance at a newsletter that credits a third party author.


Les Abromovitz said:

October 19, 2011 — 11:10 AM UTC

I have seen at least two deficiency letters that criticized an RIA for not disclosing that the adviser used a ghostwriter or freelance journalist to write newsletters and books. These critical comments were based on Rule 206(4)-1 under the Investment Advisers Act, which prohibits false or misleading advertisements.

On many occasions, advisers write articles and books to show prospective clients that they are extremely knowledgeable and to demonstrate their investment expertise. If someone else wrote those materials, a prospective client will be misled.

I believe securities regulators are far more worried about situations where the ghostwriter or third party wrote the publication from scratch. I doubt that examiners are as concerned when the adviser uses a third party to edit or proof-read a manuscript that the adviser wrote.


Susan Weiner, CFA said:

October 19, 2011 — 4:26 PM UTC

Good to know that “I doubt that examiners are as concerned when the adviser uses a third party to edit or proof-read a manuscript that the adviser wrote.”


Maria Marsala said:

October 19, 2011 — 5:42 PM UTC

Thanks Les for the clarification between the editing and writing from scratch.

Again this is one of those areas where “it’s different in the financial arena”. That’s why I recommend that my financial clients only use a professional whose niche is financial to write their marketing materials.

I mean the whole reason a ghostwritter is clled that, is because they write and then disappear, like Casper :)

In every other industry, (including coaching) when you hire a ghostwriter, etc. to write a piece from scratch they give you first rights of ownership for the “piece” they’ve written. I’ve used a ghostwriter from time to time. Usually it’s when I’m too busy to write a piece but I needed it written for a column or someone’s book. I provide my ghostwriter with the overall information and topic that I want them to write about, then they do more research and write it. I pay them and they give me ownership of the article.

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