Throughout every year, financial advisors win awards and are ranked against one another, mainly by media organizations.
This week, Investopedia published a list of 100 advisors it deems the “most engaged, influential, and educational.” Barron’s has several different annual rankings, as does Investment News and Financial Planning. There’s wealthmanagement.com’s “Wealthies,” the NAPFA Awards, and others.
It would be hard to keep up with all of them, if it weren’t for the inevitable celebrating that follows online. Exposure benefits award bestowers and recipients alike.
While wealth managers can advertise their third-party recognition, rules apply and some advisors are forgetting them. “It seems to come up all the time during examinations and advisors are always caught off guard,” Max Schatzow, an attorney at Stark & Stark, told RIA Intel.
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Schatzow cannot recall any regulatory enforcement actions against a firm for advertising some form of recognition from a third-party. But examiners have noticed and warned his clients about showcasing those things. “We’ve seen advisors who advertise these on their websites, or in press releases, or other publicly-facing mediums, and they get sort of dinged” for something that could be misleading to investors, he said.
In 2016, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) began what it called the “Touting Initiative” to “examine the adequacy of disclosures that advisers provided to their clients when touting awards, promoting ranking lists, and/or identifying professional designations.” The following year, the OCIE concluded that advisors were using rankings and awards in misleading ways.
The OCIE discovered that some advisors had obtained accolades by submitting false information. Others failed to disclose the criteria or methodology behind accolades they were flaunting, or the organization that “created and conducted the survey and the fact that advisers paid a fee to participate in or distribute the results of the survey.” Regulators also found that advisors advertised their high rankings in publications but the accolades “were issued several years prior, and the rankings were no longer applicable.”
In response to the OCIE observations, advisors chose to either remove misleading language or to add necessary disclosures.
Louis Tambaro, an attorney and principal at Offit Kurman, said tightening regulations throughout the industry should convince advisors they need to heed the guidance from the OCIE and be mindful of laws governing how they can present themselves.
“While the threat to customers with respect to the advertisement of prior accolades is minimal, regulators might take issue with the publication of ‘rankings’ that have been changed or are no longer operative, which could in theory lead to investor confusion,” Tambaro said.
Regulators consider these infractions on a case-by-case basis but Tambaro cautioned against advisors waiting to change how they present awards or rankings until they are reprimanded. “The potential benefit of the advertisement may not be worth the logistical problems caused by a caution, warning or sanction. Overarchingly, advisors should be cautious and consider the feedback of compliance personnel before publishing any award on a website or their social media page.”
Schatzow also promoted cautiousness. “I think the takeaway is just make sure you work with compliance or legal [departments] to do it right. There’s no reason why you shouldn’t promote your receipt of the award.”
And at least one attorney didn’t sound the same alarm as others.
“A stale award doesn’t seem misleading in the same way [as failing to disclose payment related to an award]. Another way to think about it is through a materiality lens. That the award was paid for would be material. That the award is five years old? Probably not material,” said Benjamin Edwards, a law professor at the University of Nevada-Las Vegas whose research includes topics within business and securities law, corporate governance, arbitration, and consumer protection.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.
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