A client said to me recently “I know I can talk about my investment product, but I’m always worried about someone accusing me of advising on securities and needing a license from the regulators. Can you gimme an example of what I can say and can’t?”
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“Sure,” I replied, “think toasters.”
Imagine nattering to your client six feet away from you, your voice slightly muffled by the mask you’re wearing, and you say
“By the way, we have a new toaster! It’s four slice, stainless steel, with a bagel option. Easy to clean crumb catcher – makes making toast in the morning a lot less messy than old toasters without crumb catchers. Lemme know if you’re interested! I’ll let you know where you can check it out!”
This, in my opinion, is informing; not advising.
Let’s cross the line!
By the way, we have a new toaster. This toaster will fit well in your kitchen [advising/opining on how it fits the kitchen – you don’t know what their kitchen looks like!]. It will make your life much easier [advising/opining on how it makes your life easier] It will be the perfect complement to all your other appliances. [advising/opining on how it complements everything else – you have no idea what their other appliances are! It might not complement them at all!] *You* will find this much easier to use then any toaster you’ve had in the past. [advising/opining that it will be much easier for them – you have no idea what kind of toasters they have had in the past and whether in fact the new toaster will be easier for them.]
To give “advice” means to offer an opinion about what one should do or how one should act in a particular situation.
In the second example you’ve gone beyond promoting the product once you attempt to “personalize” the product to “fit” the person’s perceived needs and address their perceived wants and ambitions. To give “advice” means to offer an opinion about what one should do or how one should act in a particular situation.
Let’s do the same exercise with a new investment product.
“By the way, we have a new mortgage product that’s made up of two pieces – an “A” piece for folks who want the security of a first mortgage and a “B” piece for folks slightly more adventurous – we wrap it all up in one charge that will be the first charge on the target property. The A piece aims to pay a 5% coupon and the B piece is targeted to pay 10%. We cut the pie; you choose the slice! Lemme know if you’re interested – I’ll send you the name of our dealer who’s distributing it!”
Again, in my opinion, this is “informing”, not advising. It’s alright to advertise your wares and, if the client is keen to invest, you’ve directed them to dealer who will assist your client to determine first if they are qualified to buy the security and then, secondly, whether it is suitable for them.
Let’s cross the line!
By the way, we have a new mortgage product that is critical for your portfolio [advising/opining on their portfolio]. You need an income product; we deliver it [advising/opining – you don’t know if they need an income product]. We’ve tailored this mortgage to your risk appetite [advising – you don’t know what their risk appetite is]. This is suitable for any investor [advising/opining – an actual suitability assessment is required before an opinion as to suitability is offered and that opinion should not be offered by the issuer]. This is guaranteed to do better than your GIC or savings account! (advising/opining/crystal ball gazing! Claiming a guaranteed return on anything other than a GIC is throwing chum at the regulatory sharks!). I’ll email ya a sub agreement! [complete failure – issuer placement without regard to qualification or suitability]
In this second example it is obvious where we’ve crossed the line from advertising to opining. We know the most effective marketing is marketing that “connects” with the targeted consumer. In that effort to “connect”, issuers will often cross the line from being promoters to being advisors by inadvertently (and sometimes not!) opining on what’s best for prospective investor.
As I wrote in a longer piece (that you can find here), it is not always easy to see that line between promotion and advising. Where an issuer elects to embark on any kind of advertising campaign, it is imperative that the issuer involve legal counsel to ensure that the fine line between advertising and advising is respected.