Like every new year, 2021 has brought some new regulations for advisory firms. Here are two significant regs that may impact your firm this year: 

Advertising and testimonials.

Near the end of December of 2020, the SEC announced that it had modernized its rules on advisor advertising and the use of client testimonials under the Investment Advisor Act. This change to advertising and testimonials was the first update to these rules in nearly 60 years. The new rule takes effect on May 4, 2021.

The new marketing rule allows advisors to use testimonials from current clients, endorsements from non-clients such as other professionals, and rankings on third-party review sites. Indeed, this adds a new aspect to your firm’s marketing.  

Advisors must be careful not to violate these seven conditions when using testimonials:

  • Do not include anything untrue, and do not omit any material facts that might make the testimonial misleading to consumers. 
  • Include a material statement of fact that the advisor does not reasonably believe they could substantiate if asked to by the SEC.
  • Include a statement that could cause an untrue or misleading implication about the advisor. 
  • Discuss the benefits of investing with the advisor without discussing the potential risks or limitations of this approach. 
  • Include a reference to specific investment advice by the advisor not presented in a fair and balanced fashion.
  • Include or exclude performance results in a fashion that is not fair and balanced.
  • Be materially misleading in the way the testimonial presents, in any way. 

While this new revision of the SEC’s advertising rule can open some marketing opportunities, your firm must be aware of the use of testimonials and have a plan that ensures compliance. 

Fiduciary advice exemption

In mid-February 2021, the DOL’s Improving Advice for Workers and Retirees exemption when into effect; a holdover from the Trump administration. 

This exemption expands the definition of fiduciary advice to include advice on rollovers from 401(k) plans to an IRA, advice to move from one IRA account to another, and advice on investing within an IRA. 

The exemption allows advisors to receive compensation such as 12b-1 fees connected with this advice is given as part of an ongoing relationship with your client or as part of a new client relationship. The advice must be documented, and there are a few other disclosure and compliance issues to be aware of in connection with this exemption. 

While every new year brings a set of new rules and regulations for advisors, these are two of the more significant ones for 2021. Since both regs may impact your firm, ensure your compliance department is on top of all the ins and outs of these new regs. 

Our goal at AdvisorPeak is to enable our advisors to create proactive smart alerts as part of a customized trading calendar for centralized alert processing and eliminate the need for outside trading task management. For advisors with several clients, automating these and other types of alerts efficiently manages the various tasks their clients count on them to oversee.