The Alabama Securities Commission, ASC, is changing its rules to allow state-registered financial advisers to freely advertise client testimonials.
Since 2021, federally-registered financial institutions and wealth management firms have been allowed to freely publish and advertise client testimonials online as they look to attract new clients to their businesses. However, the same was not true for independent financial advisers registered in several states, including the over 100 small, independent financial advisers operating their businesses in Alabama.
That inconsistency led many industry leaders to criticize state rules like Alabama’s for unfairly disadvantaging local financial advisers by limiting their ability to compete with larger, out-of-state firms registered with the U.S. Securities and Exchange Commission, SEC.
However, in a policy statement issued by ASC Commissioner Amanda Senn on Thursday, the ASC officially announced that it has amended its policy on adviser testimonials to match the federal rules established by the SEC. The rule change–which went into effect immediately–now allows advisers registered in the state to freely advertise client testimonials to attract new business.
“The Alabama Securities Commission has adopted changes to its policies on investment adviser use of testimonials, endorsements, and social media, allowing Alabama registered investment advisers similar latitude in marketing activities as SEC registered investment advisers,” the ASC stated in its announcement of the policy change.
The Commission went on to explain the thought process behind the rule change, emphasizing their desire to level the playing field between state-registered advisers and those registered with the federal government.
“Our existing rule prohibiting certain marketing activities was adopted in 1990 and were consistent with the prohibitions imposed by the SEC for federal covered advisers,” the Commission stated. “In the decades since, advertising and referral practices have evolved, as has the technology and methods used for communications. In recognition of these advancements, the SEC adopted a new Marketing Rule which went into effect in 2021.”
“It is the intent of the ASC to level the playing field for investment advisers registered and domiciled in the State of Alabama and enable them to provide existing and prospective clients with useful information as they choose among investment advisers and advisory services, subject to conditions that are reasonably designed to prevent fraud,” the Commission added.
The ASC policy statement clarifies that advisers must disclose whether or not a testimonial is given by a current client or investor, whether a testimonial is paid for with cash or non-cash compensation, and whether any “material conflicts of interest” may exist between the individual providing the testimonial and the adviser. Advisers must also disclose whether a testimonial or endorsement is provided by the adviser’s partners, officers, directors or employees.
Additionally, the policy statement clarifies that social media posts are included under the ASC’s advertising definition. Advisers will also continue to be responsible for keeping records of all advertisements they disseminate under the new rule–now including testimonials and endorsements–as well as “back-up documentation that substantiates advertised facts.”
For Brian Thorp, founder and CEO of Wealthtender–an independent marketplace where consumers can research and hire financial advisers–the new policy ruling is a welcome change.
“Alabama took an important step today for its residents and more than 100 financial advisors operating small businesses across the state. This decision finally levels the playing field and ensures Alabamians can fairly evaluate all financial advisors, whether they work for large national firms or choose to remain small serving their local communities,” Thorp said in a written statement provided to APR.
“According to an August Wealthtender consumer study, eighty-three percent of Americans want to read online reviews when evaluating financial advisors, even after receiving a personal referral,” Thorp added. “Alabama residents deserve the same transparency when choosing someone to manage their life savings that they have when picking a restaurant or hiring a plumber.”
Commissioner Senn also celebrated the rule change in a written statement to APR, highlighting the policy shift as part of an ongoing effort by ASC to lift up Alabama’s small businesses.
“The Alabama Securities Commission recognizes the work of our outstanding investment professionals and continuously seeks ways to elevate Alabama’s small businesses,” Senn stated. “The policy statement reflects a continued commitment to our investment professionals in providing the flexibility and tools they need to thrive, better serve investors, and continue strengthening Alabama’s financial community.”
“The marketing rules will allow advisers to showcase their expertise and promote their work responsibly in a rapidly expanding digital landscape,” she added.
