Advisor newsletters: Compliance-wise, all news may not be fit to print
Even a photograph of a client may be viewed as a testimonial
5 min read- Treat newsletters as advertisements, triggering compliance with SEC Rule 206(4)-1.
- Avoid implied testimonials, such as client photos, which violate advertising rules.
- Disclose use of ghostwriters or third-party content to maintain transparency.
- Refrain from selective amnesia by omitting poorly performing investments.
- Ensure website content remains current to avoid misleading information.
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.
Advertising practices that can raise the hackles of regulators
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.
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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.
Compliance GPS: It may be a mistake to project too successful an image, especially in a post-Bernie Madoff world
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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