Four active marketing strategies that can lead to compliance trouble

Les, interesting opinions and advice.

Two questions…

Can you explain the compliance requirements for a solicitor and what type of client “thank you” gestures trigger these?

Can you share the FINRA or SEC language that states that pictures of clients might be an implied endorsement?

Thanks — Mike Byrnes, President of Byrnes Consulting, LLC

Hi Mike-

Your questions are goods ones. My opinions are based on an interpretation of the rules. The rules themselves leave many questions unanswered. In some instances, my conclusions are based on discussions with securities regulators and the reports issued by compliance examiners following RIA exams.

For SEC-registered advisers and many state firms, the compliance requirements for solicitors are found in Rule 206(4)-3. This rule can be found at: http://taft.law.uc.edu/CCL/InvAdvRls/rule206(4)-3.html. Although Rule 206(4)-3 refers to cash payments to solicitors, I believe that examiners will frown upon any arrangement where someone is compensated for referring clients. For example, I would be worried if an adviser tells clients that they will receive a $50 gift card every time they refer a new client. I’m less concerned about a situation where an adviser takes a client to lunch or dinner to thank her for a referral.

With regard to your second question, RIAs are prohibited by Rule 206(4)-1 from using direct or indirect testimonials and client endorsements in advertisements. (http://taft.law.uc.edu/CCL/InvAdvRls/rule206(4)-1.html.) Let’s say an adviser puts a picture of himself and a client on his website as they discuss investments in the RIA’s conference room. I strongly believe that the photo is an implied testimonial for the adviser under Rule 206(4)-1. FINRA’s testimonial rule for brokers is much more lenient.

I hope this answers your questions. Thanks for reading this post.

Les

Why are the regulators looking at free lunch seminars? These seem to be standard practice in the financial planning and asset management business.

Regulators are concerned that free lunch seminars put senior investors at risk. You can find their rationale in a report from the SEC, NASAA, and FINRA, which is located at: http://www.sec.gov/spotlight/seniors/freelunchreport.pdf.

Thanks for commenting.