Considering hosting a radio show? The SEC may tune in.
Radio programs and commercials pose compliance complications. Disclosure helps.
4 min read- RIAs broadcasting advice must comply with advertising rules, including registration across state lines.
- Testimonials, even subtle ones from clients, are prohibited in RIA advertising.
- Disclosing past recommendations requires providing a comprehensive list, including failures.
- Exaggerated claims in radio commercials violate advertising regulations and can mislead investors.
Several decades ago, the airways were filled with commercials for Ronco products that you could not live without, such as Hair-in-a-Can, the Pocket Fisherman, Veg-O-Matic, and the Inside-The-Shell Electric Egg Scrambler. I was enthralled by the Mr. Microphone, a hand-held transmitter that allowed you to broadcast over FM radios.
Today, Registered Investment Advisers (“RIAs”) don’t need a Mr. Microphone to broadcast financial advice and market their services. Many Investment Adviser Representatives (“IARs”) host radio programs providing investment advice. Some advisory firms use radio commercials to market their services. In either case, you need to make certain you are in compliance with advertising rules that apply to RIAs.
Hey prospects. I’m on the radio.
To avoid compliance problems, you need to know where your listening audience is located. If the broadcast can be heard across state lines, make sure you have met all of the registration requirements in that jurisdiction.
One investment adviser made the mistake of asking his good friend and client to co-host the program. In the course of the program, the client made glowing remarks about the adviser, which is a testimonial. A testimonial is a statement relating to a client’s experience with, or endorsement of an investment adviser. The prohibition applies to both overt and more subtle testimonials.
Call-in dangers
Social media can turn regulatory exam into fiery wreck
Another danger with radio programs is that a client might call the show to ask a question and mentions your talents as an investment adviser. An adviser makes this compliance violation worse by encouraging clients to call in to praise the firm.
Advertisements containing testimonials are viewed as misleading by securities regulators, because just about any RIA can find someone who has favorable things to say about the firm. In addition, testimonials give the impression that every client had a good experience with the adviser. Shocking as it may seem, I have not encountered any RIAs that want to advertise their clients’ negative comments.
Another compliance problem arises when the adviser refers to past specific recommendations made by the firm. Usually, the adviser hosting a radio program brags about a stock pick that went through the roof. The host invariably neglects to mention those stock recommendations that failed miserably. Rule 206(4)-1 under the Investment Advisers Act states that RIAs may not discuss past specific recommendations unless they offer to provide a list of all recommendations made during the past year.
Story Timeline
Disclosures help advisers avoid compliance problems. For example, an adviser might say:
Information presented on this program is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information and may not be suitable for members of the listening audience. A professional adviser should be consulted before implementing any of the strategies presented.
Advertising practices that can raise the hackles of regulators
RIAs should disclose if the firm paid the radio station to broadcast the program, which happens quite often. It may be misleading if advisers tout their radio program as evidence of their investment expertise.
Radio commercials
Even a short radio commercial can create compliance problems.
Radio commercials are typically short but may contain too much marketing hype. If advertising claims are exaggerated, the commercial violates state and SEC regulations prohibiting false or misleading advertisements.
I have heard radio spots describing the adviser as “nationally acclaimed” or that use other embellishments. The commercial might promise more than any adviser can deliver, such as an assurance that investment strategies are risk-free or that investors will never run out of money.
Your firm’s chief compliance officer should review the content of any commercial before it is broadcast. That individual, or a designee, should also monitor the content of any radio programs hosted by IARs. It is also important that radio programs and commercials be retained in accordance with the applicable Books and Records Rule.
If you are really worried about compliance, there is one sure-fire solution. Stick to broadcasting with your Mr. Microphone.
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.
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