Individuals wanting to work with our company often call us and ask us for a reference. This makes sense. In almost every industry you want to know someone who has worked with a service provider before hiring them yourself. Though in the world of investment advice the answer is;

No, we can not give you a reference.

There has been this misconception that advisors can provide references, but this is not the case. While for us advisors, this makes our job of getting new clients harder, especially for those of us who pride ourselves on providing top notch service, this rule does come with a valid reason.

Let’s start with what the rule is.

The Securities and Exchange Commission (the “Commission” or “SEC”) regulates investment advisers, primarily under the Investment Advisers Act of 1940 (the “Advisers Act”). The Advisers Act “…generally defines an “investment adviser” as any person or firm that: (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications.” “Subsection (a)(1) of the Advertising Rule provides that it shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business to, directly or indirectly, publish, circulate or distribute any advertisement that refers, directly or indirectly, to any testimonial of any kind concerning the adviser or concerning any advice, analysis, report or other rendered service. . . . such advertisements are misleading; by their very nature they emphasize the comments and activities favorable to the investment adviser and ignore those which are unfavorable.”

Why is this in your best interest?

The SEC enforces this rule on investment advisors because they do not want one good experience of a client to be marketed as the sentiment of all the clients of that advisor. When you ask for a reference from an advisor, are they going to send you to someone who had a bad experience with them or a good one? Of course, they will give you the name of someone who is a cheerleader for them and their firm. The SEC does not want advisors to be able to tout their good experiences without advisors sharing the bad ones as well, so they do not allow advisors to use client referrals. A reference is considered a testimonial since the advisor would first be able to vet who the reference is, which allows them to choose someone who they know had a good experience and will say good things. Also, your advisor should not give out a reference because it breaks confidentiality with their client. Clients of advisory firms have a right to privacy and confidentiality and unless it is previously discussed with a client, an advisor should not share any contact information or details about their clients with anyone. Instead of asking for a reference you might want to ask your future advisor if they have had any complaints from previous clients and what they did to remedy their client. You can use the SEC search or BrokerCheck websites to find any discourse or suspensions for advisors you are currently looking to work with. If you find an advisor who is going to give you a reference, ask them how they do business and who they are regulated by. You might find out this is not someone you want to work with.

Finding and giving advisor referrals.

You can still find referrals for advisors in your general network, on Yelp, or other social media profiles. The SEC does allow clients to post their experiences on the internet as long as the advisor has no ability to edit, hide, or delete unfavorable posts. Advisors should have no control over the content that is posted about them on third-party independent websites. “An investment adviser’s or IAR’s own social media profile or account that is used for business purposes is not an “independent social media site.” So, if you would like to leave a review, do not post it on the personal social media pages of the advisor or they will likely have to take it down. Your advisor should not draft your review for you or post it on your behalf. If you would like to review your advisor it needs to solely come from you. Also, your advisor should never provide you compensation for giving them a review.

Trust in your own experience.

So, when you call an advisor and directly ask for a referral, they should not give you one, but you can still find them on your own. Just remember, this rule was instituted to benefit the consumer, not the advisor. The SEC’s goal was to help the consumers to not get sold bad advice based on one client’s favorable experience. Consider this when you are looking for reviews of an advisor. There are so many different types of advisors who sell different products, have different services, charge differently, and work differently. You have to find the best fit for you which might not be the best fit for someone else. In the end, you should always make sure you trust your advisor and poke holes in any good reviews you find. You should not trust a testimonial or one client’s good comments but instead, trust your own experience. There are many questionnaires you can find online that will help you ask potential advisors why you should work with them, which can act as a guide to making your own judgment. You should always look for someone who is a CFP®, fee-only and a fiduciary. Let your own opinions, not the opinions of others, direct who you want to work with. Sources: https://www.sec.gov/divisions/investment/iaregulation/memoia.htm  https://www.sec.gov/investment/im-guidance-2014-04.pdf  Alicia Butera, CFP® is a Financial Planner for Planning Within Reach, LLC (PWR) located in Scripps Ranch, San Diego, CA. She is the Director of Financial Planning and Marketing for PWR. Alicia manages the financial planning process from start to finish with her clients, answering their questions and providing them guidance. Alicia has 8 years of experience in wealth management and works virtually with clients all over the US. Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego, CA. PWR is a virtual firm that is woman-owned and serves busy families and impact investors. Planning Within Reach, LLC and their advisors never receive any type of commissions for sales and does not have any insurance licenses or brokerage relationships.