What Advisors Should Do About Online Reviews

by By Justin Kuepper (Originally published at Investopedia)

TripAdvisor helps travelers find hotels, Yelp helps diners find restaurants, and Angie’s List helps people find household workers, but few websites provide reviews of financial advisors. With the SEC revising its rules on the matter, advisors can expect to see a growing number of reviews across a variety of established apps and start-ups. Handling these reviews could become an increasingly important step in the operation of a financial advisory business.

Let’s take a look at some places online reviews can be found, best practices for cultivating reviews, and the SEC regulations surrounding the entire process.

Finding Online Advisor Reviews

There are a few different places where consumers can find online reviews of financial advisors, including popular online review apps like Yelp and niche financial apps like WalletHub.

NerdWallet is one of the most popular websites that enables financial advisors to answer questions from visitors. Based on the quality of these answers, the financial advisors are rated and organized for visitors looking for options. This is a great way to build trust within a niche financial community that could become a source of client leads.

Another popular review site for financial advisors is WalletHub, which was launched by Evolution Finance in February 2012. The website provides consumers with reviews of many financial products and services ranging from credit cards to banking services. This is a rapidly growing source of financial advisor reviews that’s starting to rank in search engines.

The problem with many such sources is that there aren’t a lot of reviews. Restaurants may serve hundreds of guests each day that could leave a review, but a typical financial advisor may only have 100 clients at a time and — until now — couldn’t solicit reviews. Also, many online review websites generate the majority of their reviews from a small number of active users or those that have bad experiences and want to vent.

SEC Regulations Governing Reviews

The Securities and Exchange Commission (SEC) has been a longtime critic of online reviews for financial advisors. With consumer livelihoods at stake, the regulatory agency was concerned that these reviews could be manipulated and that there would be a large potential for abuse.

The original rules are very clear in that regard, saying:

“[i]t shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business […] for any investment adviser registered or required to be registered under [the Advisers Act], directly or indirectly, to publish, circulate, or distribute any advertisement which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser.”

The good news is that the SEC’s Division of Investment Management has relaxed the rules surrounding social media in recent years. Financial advisors may now cultivate reviews in instances where they have no control over the content of the review, the reviewer is not compensated in any way, all reviews (positive and negative) are published, and the advisor doesn’t promote their services on the pages where the reviews (e.g. testimonials) appear.

These rules suggest that Facebook pages and other media where advisors don’t have control over the content that others post may be permissible. The catch is that advisors cannot post any marketing content on these pages without risking violation of the testimonial rule.

Best Practices for Cultivating Reviews

The best way to embrace online reviews is to actively cultivate them from existing clients. By doing so, financial advisors can ensure that their business has enough online reviews for would-be clients to make an informed decision without violating the SEC’s rules.

Visitors are looking for three things when reading online reviews:

  • Number of reviews: A financial advisor with a single 5-star rating is in a better position than an advisor with no rating at all. But an advisor with 100 reviews and a 4-star rating might be perceived as being more popular by visitors.
  • Overall rating: Financial advisors that have reached a critical mass of online reviews (defined relative to their peers on the particular review website) will compete largely based on their overall rating and secondarily by the content of the reviews.
  • Review content: Financial advisors with helpful longer reviews may be preferred over competitors with simple ratings and/or short reviews.

Financial advisors can cultivate online reviews to improve these metrics by asking clients to talk about what they liked about their services and performance and then providing an iPad or tablet in a waiting room and asking clients to leave a review while they wait. Of course, advisors shouldn’t offer anything that could be construed as compensation, they should avoid deleting any comments (even negative ones), and they should steer clients away from posting personal information.

The Bottom Line

Online reviews are a popular way for consumers to find everything from the best restaurant to a plumber, but finding advisors this way has been hard to come by. With the SEC’s change of heart, advisor reviews may become more prominent over the years on both popular review websites and niche financial websites. Financial advisors can cultivate online reviews to target these new areas of the market, but should carefully follow the rules when doing so.