SEC Says No to Client Surveys

I am not a cutting edge technology person.  In fact, I tend to be a follower…not a late adapter, but somewhere in the middle.  That is why when I came upon “Open Table” a few years ago, I was thrilled.  As someone who travels a lot, the ability to find a good restaurant with comments and reviews wherever I went was awesome.  I have the app downloaded onto all of my devices.  I use it multiple times each week.  At the same time I discovered Open Table, I was doing some minor renovations on my home and began using “Angie’s List”.  Again, this is a great site that lists and rates home repair services.  It serves a need and can be used by anyone (for a small fee).

I also become very adept at using various news services and their related apps on my mobile devices.  At any time, whatever airport I was waiting at, I could check on CNN and Fox News and get their conflicting reports.  I could also check out the Wall Street Journal and others.  I really enjoyed (and still do) scrolling the key headlines and clicking on what I felt was interesting.

Out of these experiences came the idea for Millionaire Corner.  Spectrem Group’s research has consistently indicated that investors find financial advisors through referrals from friends and family.  At the same time, our research was hinting that investors would like to be able to go somewhere else in order to validate the recommendations of their friends or perhaps find someone even better!  We researched that issue and, indeed, found that more than a third of investors were searching the Internet for more information about financial advisors.

Since Spectrem Group’s expertise is market research, why not create a customer satisfaction survey and post it on a website listing various advisors?  We could create the “Open Table” for financial advisors.  At the same time, we would be responsible for drawing investors to the site using our own research with investors.  We have generally found that wealthy investors like to respond to our research because we give them a report out of the findings.  This allows them to see what other investors like they are thinking and doing.

In February of 2011 we launched the investor side of MillionaireCorner.com.   We hired talented writers and each day we populate the site with up to date information that is happening in the financial markets.  As frequently as possible, we link the stories to the date and analysis we have available in our market research.  We also populate the site with videos and “e-learnings” about specific topics.  Our goal is to write for an average investor, not for someone with investment expertise.  We want to be a step up from Suze Orman as far as the level of expertise our readers may have.  Two years later, we now have about 70,000 unique visitors to the site each month and we continue to grow.

So what about the “Open Table” service for advisors?  Because this is a compliance-based industry, we thought the best way to tackle the issue was to go directly to the SEC and ask for a private letter ruling.  Why wouldn’t we be able to get it?  People are already going to services like “Yelp” and posting comments about financial advisors.  There is no screening or quality control over these services.  We would be bringing our research expertise to this medium.  We would post all ratings, both positive and negative so that an investor had a realistic view of the advisor.

We showed the SEC our “Find an Advisor” profile.  We explained that we would be doing a custom video for each advisor and that we would let he or she describe his or her practice.  At the same time we would be sending a customer satisfaction survey to the advisor’s clients.  All of the surveys would be the same and ratings would be based upon the key components Spectrem’s research indicate are the primary satisfaction factors in an advisory relationship.   Factors include knowledge, pro-activeness, understanding the client needs and similar issues.  It does not include investment performance, because generally fees and investment performance are not the primary reasons an investor fires an advisor.  Once the client information leaves the advisor, it is returned to Spectrem.  An advisor has no ability to change the information.

As many of you may suspect, our biggest hurdle was what is known as the Dalbar No-Action ruling, dated March 24, 1998.  In that No-Action Letter, the SEC determined that the rating given by Dalbar was a “testimonial” because the rating is an explicit statement of the client’s experiences with an advisor.  An advisor cannot use “testimonials” in relationship to any advertising he or she may conduct in order to avoid violating the Investment Advisers Act.

We spent almost 12 months working with the SEC regarding various ways in which the surveys and the ratings could be conducted in order to provide investors the ability to see the ratings of advisors.  We promised to review disclosure policies of the advisors.  We agreed to take the video off of the site and just include a picture of the advisor.  We agreed to take off any customer comments and just show the overall ratings in the categories.  And, as you probably suspect, it took a long time to get responses regarding various issues.

In the end, the day before Thanksgiving, the SEC basically said “no”.  In a cordial discussion with them they indicated they just couldn’t get past Dalbar, even though they acknowledge that it is from a different century.  With investors becoming increasingly comfortable with new services and challenges, it is frustrating to all that these capabilities can’t be given to investors.  Instead, they will rely on comments posted on “Yelp” to review their advisors.

At the same time, we hope to attract both investors and advisors to our revised “Find an Advisor” service.  This service allows advisors to present themselves to investors via a video and an explanation of their services unlike any other.  Investors can sort by expertise and geography.  Then, before contacting an advisor, they can play the video and see what they think of the person.  Our job is to help advisors develop a compelling video and an appealing description of their practice.  We are also responsible for drawing investors to the site.

One of the features we retained with “Find an Advisor” is the customer satisfaction survey.  While we cannot display the findings on the site, the advisor can review the findings and make changes to his or her practice as needed.

We plan to go “live” with our Find an Advisor service on March 1, 2013.  It has taken us two years to get to this point, but we are really excited about the opportunity available.  While investors won’t get to see the ratings, they will get to view multiple advisors in an interesting manner.  At the same time, we will continue to draw investors to the site with new features including our Millionaire Corner Financial Literacy Institute and our “Compare Yourself to a Millionaire” feature, both of which are being launched in the next few weeks.

As for the SEC, they hinted that we should keep our eyes and ears open.  Maybe they will soon move into the 21^st century.