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New SEC Guidance for Financial Advisors

handshakeJust recently the Securities and Exchange Commission (SEC) granted money managers and advisors the right to feature third-party reviews on their marketing materials. Meaning: Your advisor can now use your dazzling Facebook review (of him) to boost his business. I asked WalletHub CEO Odysseas Papadimitriou for the run down – why you should care and what this means for the advisory industry? Here’s what he had to say:

JC: What finally sparked the SEC to allow this?

OP: Not sure, but we hope that sites like Yelp & WalletHub that have allowed reviews on financial advisors irrespective of financial gain had something to do with this. 

JC: What does this mean for consumers/investors?

OP: This represents a major breakthrough for consumers and investors. In a world where everyone relies heavily on the internet for fast-paced information, this will allow investors to react faster. Additionally, consumers/investors are now free to compare the professionals who manage our money with the same level of discernment and transparency that has long been available in other segments of the market – from hotels to restaurants and consumer electronics. In other words, the SEC is making ground breaking strides to level the playing field.

JC: What does this mean for financial advisors?

OP: Financial advisors working above the board benefit from the new guidelines in that they are now allowed to use reviews on third party websites for their own marketing purposes. This gives the added advantage of existing and potential clients seeing their advisors as open and transparent. Since finances are so personal, the elevated level of trust established with their clients allows for the likelihood of guiding the clients to more profitable investment decisions, a higher number of referrals from existing clients for future clients, and higher public visibility to those who are looking for an advisor.

JC: How long has this been in the works? 

OP: Since the early ages of the Internet, online reviews have been a transformative power in commerce. Prior SEC guidance was even viewed as unconsitutional by some so it is fair to say that this has been an issue debated on and off for more than 20 years. 

JC: How will financial advisors be monitored so that they’re not putting up positive reviews of themselves under aliases?

OP: We would all love to believe that the whole community functions on an “honor” basis, but unfortunately that is not always the case. At WalletHub. we do our best to mitigate and curb the posting of reviews that are not from sources with personal experience, or are made by the reviewee, through a series of checks and balances conducted by our community moderators in conjunction with our proprietary data and algorithms. These measures weed out a substantial portion of the offenders’ posts. Finally, it is important to note that fake reviews are illegal and state attorney generals are becoming increasingly involved in identifying offenders. Now they will also have the SEC on their side in policing the space. 

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