As financial advisers aim to exploit the opportunities presented by the SEC’s recent update to its client testimonial rules, a new fintech company has launched to help them do just that.
Indyfin, a Dallas-based company founded by former Merrill Lynch adviser Akshay Singh, opened its investor experience platform on March 3 after venture capital firm Leo Capital conducted a seed fundraising round. of $2.2 million. This represents fintech’s first round of institutional funding.
After the SEC adopted its “modernized” marketing to reign in December 2020, which opened the door to practices using client reviews in advertising, Singh teamed up with securities lawyers to create a compliant service for independent advisers that adheres to the guidelines.
The service acts as a mix of a connection and referral network for customers and hosting an online profile similar to those of Yelp and Airbnb for advisers. Neither pays a fee to Indyfin upfront; only advisors will pay a comparable amount to the RIA referral networks of Charles Schwab and Fidelity once the client hires them, Singh said in an interview. Participating advisors – there are hundreds of them in the company’s pipeline after the pilot demos – will ask their clients to review them, but they will have no control over the results or presentation of their profile. Indyfin will connect potential clients with potential advisors through a survey.
With a lot of confusion on the 430 page rule and criticism among many small practices who are often excluded from existing RIA referral programs due to minimum asset requirements, Singh wanted to give independent advisors access to client leads and a way to use testimonials in a compliant manner.
The service “helps advisors grow and helps consumers make the right decisions,” he said.
“What’s missing in the industry today is transparency,” Singh said. “It just makes it much easier for the consumer to trust that advisor. They are just browsing all over the internet. There is no way for the consumer to trust the advisor.
To establish the connection, Indyfin asks potential clients a series of questions to obtain information such as their location, the services they are looking for, their investable assets and other details. Then the software matches them with potential advisors, whose profiles include verified customer reviews, lists of their relevant areas of expertise, and whether they work with a particular niche of customers. Reviews feature overall ratings on a five-star scale, along with about two dozen other metrics prospects can use to rate the advisor.
Once clients have selected a potential advisor and booked a meeting, an Indyfin staff member answers any further questions and reminds them what questions to ask the firm in order to find the right person.
“We’ve been very pleasantly surprised at how advisors and clients are taking this opportunity to provide feedback,” Singh said, noting that the questionnaires provide about 25 different data points for each advisor. A sample advisor profile he showed during a demo for Financial planning posted about 20 different customer reviews.
Many practices have already adapted to online reviews referenced by Google and Yelp by tracking them down and, in some cases, responding to them like a local restaurant or other business would. Since these opinions are not solicited by the practices, they are not affected by the rule. Another lingering problem stems from the fact that most corporate customers don’t do any online reviews. And compliance issues often emerge when consulting practices consider something as routine as create a decent website. New to reign become effective May 4, 2021.
“The Marketing Rule reflects significant updates to traditional advertising and solicitation regimes, which have not been changed in decades, despite the evolution of our financial markets and our technology,” said Jay Clayton, then SEC Chairman, in a statement. adoption of the rule. “This comprehensive framework for regulating advisor marketing communications recognizes the growing use of electronic media and mobile communications and will serve to improve the quality of information available to investors.”
A service like Indyfin’s wouldn’t have been possible under the old rules, according to Compliance Risk Concepts founder Mitch Avnet. He points out that with the ability to use testimonials and even paid testimonials comes the duty to disclose any compensation involved in the recommendation or referral and to vet any vendors that RIAs might use for these purposes through a documented due diligence process.
“The adviser must be very careful not to select certain clients to give opinions in order to ensure that he is truly independent. You can’t select cherries,” Avnet said. “While they’ve loosened the reins to allow this now, disclosure issues are going to be front and center.”
Indeed, a Blog from last year by a colleague wealth compliance expert Scott Gillthe founder of RIA Synergy Compliance Solutions, lists five different boxes for practices to check if they are trying to use testimonials under the SEC’s new marketing standards.
“Many industry professionals believe this change is long overdue,” Gill wrote. “I consider myself among them. However, I also understand that with additional rights come additional responsibilities. So I remain cautiously optimistic about this change. In other words, I think I’ll wait for the test results and deficiency letters to start showing up before throwing confetti and drinking champagne.
The first amendment to the SEC’s marketing rules since 1961 gives advisers the opportunity to reboot their entire approach, according to Kelly Igoe, chief compliance officer for RIA in a Box.
“Every ad needs to be watched with a whole new pair of glasses,” Igoe said.
Singh has removed some potential issues from advisers’ plates by working with legal advisers to ensure Indyfin complies with the requirements of the rule, he says. The current moment is “a standout moment in the industry,” Singh said.
“Finally, we are moving towards a place where independent financial advisors will be spotlighted through their clients’ feedback,” he said. “We give the consumer this transparent data and the ability to make a choice.”