4 Compliance Considerations for Financial Advisors Who Offer Online Courses

5 min read
June 28, 2018

Financial advisors often provide online educational content as a way of promoting their firm and attracting prospects. Online courses are an opportunity to engage with prospective clients and show them your value without an extensive commitment on their end. One of the most difficult parts of acquiring a new client is that final step where they actually have to sign on the dotted line. The opportunity to get in front of prospects without that commitment is an attractive proposition for financial professionals.

Online courses also increase brand recognition, providing an opportunity to showcase your firm and earn backlinks to your site, which increases your visibility in the competitive financial planning space. Furthermore, you can use online courses as a data-gathering tool and an opportunity to get to know prospective clients. By gating your content and requiring that your prospects answer a few simple questions to gain access, you can learn more about your prospective clients and guide them into your marketing funnel.

Providing educational content that can be easily and widely distributed can be a relatively inexpensive project (monetarily speaking). Once the content has been created, you can distribute to the masses and potentially reach an unlimited number of prospective clients.

From a marketing standpoint, online courses can be a prospect goldmine for financial advisors. But before you jump to create an online course, there are a few compliance considerations to keep in mind (aren’t there always?).

Collecting Data Creates Privacy Issue

Anytime you collect someone’s data, be it online or in person, it can pose privacy issues. While gathering a small amount of personal information on clients is to their benefit and can help you tailor their experience to their specific needs, this practice can lead regulators to question whether or not you’re acting in the capacity of a financial advisor when the course is administered.

At the commencement of every advisory relationship, client suitability data should be collected so any investment and financial planning recommendations that are made can be tailored to the needs of the client. If personal data is collected at the time an online financial planning or asset management educational course is administered, then this process may mirror that which signifies the beginning of an advisory relationship. Therefore, regulators may require your privacy policy and ADV be distributed and a contract be signed prior to the administering of the course, depending on the content of the course and the process by which you collect personal, non-public information and offers solutions based on that information.

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There’s a Thin Line Between Advisory and Education Services 

Generally speaking, educational courses fall under one of two categories for the purposes of compliance: marketing and advertising or advisory service. Each regulator will draw this distinction as they see fit. Fortunately, there is one common factor you (or your Chief Compliance Officer, if that isn’t you) can use as a boundary: whether or not you charge a fee for your educational course. 

If a fee is not charged and your course is offered to the general public at no cost, it is easy to make the argument that the activity falls under marketing and advertising. In this instance, you would use regulation SEC 206(4)-1 to frame their regulatory review and compliance procedures for the course.

On the other hand, if you do charge for your online course, the argument can easily be made that this does constitute an advisory activity because the user of the course must at some point provide authorization for a fee to be deducted from their account in exchange for financial planning or advisory content. In this instance, it is much more difficult to argue that no description of this service needs to be included in form ADV Part 2A, and no advisory contract needs to be executed prior to the course being administered.

Regulators Have the Jurisdiction to Impose Their Opinions on What Constitutes an Advisory Service

If you choose to offer educational online courses, you must maintain and execute active supervision over every part of the process. A thorough process to review the content prior to dissemination is critical. You should be able to explain this process and present adequate documentation that the procedures are being followed on an ongoing basis.

All external links that take users to other websites should be reviewed regularly, and any links to your documents, such as your ADV and Privacy Policy, should be checked for accuracy as often as reasonably possible (quarterly is a valid suggestion).

Regardless of what determination you make about the compliance requirements for your online course, regulators have the jurisdiction to enforce action based on their opinion as to whether or not your course constitutes an advisory service. In the instance of a disagreement between you and the regulator, the more thorough and complete your policies and procedures are, the less likely there are to be harsh penalties leveraged by the regulator for a deficiency.

To Sign or Not to Sign… That is the Question.

Do people who take your online course need to sign any type of agreement prior to access of the course? This is one of the most common questions we hear. The answer to this question exists along a continuum of potential regulatory responses. The safest approach is to have the user of the educational course sign an agreement whether or not there is a charge. In that signature, they can acknowledge any disclosures and disclaimers necessary, and if needed, authorize billing. Ideally, you should mandate they click to acknowledge receipt of your ADV Part 2 and Privacy Policy.

By maintaining records of these actions, you will be prepared in the event regulators determine your online course constitutes an advisory activity. It would also serve you well to execute an ADV Update, adding a description of your educational course in Item 4 of Form ADV Part 2A, and a corresponding description of the fees and compensation to be charged in Item 5. In essence, you should treat the educational course as a full advisory service. 

The other end of the spectrum is being fully prepared to argue that your online course does not constitute an advisory service and therefore does not require a signature, document delivery, or an ADV update.

When in doubt, it is in your best interest to provide an outline, contents of the course, or the entire course to regulators for review prior to rolling out the educational online course to ensure compliance.


About the Author

Scott is a licensed Securities Principal with experience in both RIA and broker-dealer compliance. He began his financial services career in 2006 as a Registered Representative with E*Trade Financial in Alpharetta, GA. He has also worked with J.P. Morgan Private Banking in Chicago, IL and with Wells Fargo Advisors in Chapel Hill, NC.

Scott’s most recent role before joining Team XYPN was as Compliance Officer of Carolinas Investment Consulting, in Charlotte NC. He’s a graduate of The University of North Carolina at Chapel Hill and holds FINRA Series 63, 65, 24, 4 and 53 Licenses.

Scott lives in Charlotte NC with his wife Meredith, and their two Sons Tyson and Jackson. In his free time, Scott enjoys watching sports, exercising, and operating the charitable organization he created upon his father’s passing.

You can connect with him on LinkedIn.

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