Compliance in Investor Marketing: What’s Legal and What’s Not

compliance in investor marketing

Although the financial services industry has come a long way from the pump and dump schemes of the Wolf of Wall Street days, retail investors should still be cautious when accepting unsolicited advice. Listed companies need to be even more cautious when trying to attract retail investors to their stock.

Below, we will explore the compliance of investor marketing: what’s legal and what’s not.

1.  Making promises you can’t keep: guaranteed investment returns.

Don’t: The number one red flag to look out for is anyone making promises of guaranteed returns. Past performance is not indicative of future results and may not be repeated. No one has a crystal ball and accurately predict the future or the markets. Any calculations, projections, yields or rates are based on assumptions and actual results may differ. Even historical annual compounded returns may not take into account any fees, taxes etc. and cannot be accurately predicted for each individual investor.

Do: With all investments, retail investors should be mindful of their own risk appetite and do their own due diligence. All investments are made at the risk of the contract holder. Before accepting any unsolicited advice on a stock, retail investors will do their own research bearing in mind their own financial goals. They look at past performance, all public information, financial statements, press releases etc. to make their own conclusions on an investment. Make sure you tell a holistic stock story that encompasses all these aspects.

2. Conflicts of interest and insider information.

Don’t: Disseminating inside information is strictly forbidden. When it comes to new issues, the only information allowed from the issuing company are the applicable prospectus, offering memorandum, information statement or subscription agreement. When investing in public stocks, investors are only permitted to use publicly available information. All potential conflicts of interest should be clearly disclosed including any company subsidiaries. This includes those of the Advisor, stock promoter, or the investment. Acting on insider information is illegal.

Do: It goes without saying that all published information, although subject to change, should be believed to be accurate and reliable. Small and micro-cap stocks frequently have little to no public information available and are more vulnerable to fraudulent activity. Red flags include suspended trading activity, fraudulent or exaggerated press releases and spam. Avoid creating suspicion in prospective investors by making a plan for a steady flow of company news, updates, and media coverage. We can even provide you with 30 Press Release Ideas.

3. Sponsorship.

Don’t: There is a fine line between illegal stock promotion and being a paid contributor or influencer. Contributors of online communities can be paid to share information as long as they only post links to content. No opinions or stock boosting is allowed. The focus is on the news quality and not any potential capital gain.

Do: Any potential profit being made on promotion MUST be disclosed. Ads for promoting stocks are allowed as long as they are noted as such. If you’re interested in using contributors or influencers as a marketing tactic, specialists who navigate this landscape every day can help make sure it’s done legally and effectively. Check out our Spectrum program to learn more.

4. Aggressive stock promotion: pressure to buy RIGHT NOW.

Don’t: Be wary if the promoter pitching is applying pressure to buy right now and a deal is for a limited time only. Question if this is because of the terms of the deal, because of potential insider information or just questionable sales tactics.

Do: Deal terms could have a close date. For example, with new issues or closed-end funds. Many of these have minimum investment amounts and are only for accredited investors. Additionally, even when entering a deal with a preliminary prospectus, investors can change their mind after receiving and reviewing the final prospectus. Of course, all parties should review all the details of the deals that they enter but keep in mind that there should NOT be a sense of urgency. Terms must be agreed upon in writing and are subject to change in each jurisdiction. Although it might bring in a few investors, this pressure tactic can create suspicion with seasoned investors. Read more about the value of retail investors.

5. Strict guidelines for some industries.

Don’t: Although all public companies are legal enough to be listed on exchanges, there are still significant difficulties in the promotion of some industries. For example, strict guidelines on most social media forbidding any content that promotes the sale of certain products.

Do: For more information on this confusing topic, please see Plexus Media’s last blog post.

Investor Marketing Best Practices

An effective investor marketing campaign is integrated, consistent and multi-faceted. It includes creating a compelling stock story and content to match. Followed by diligent fact-checking, a clear target market and consistent communications strategy to engage potential retail investors and shareholders. Due to the way retail investors consume their information, having a digital strategy is important now more than ever when sharing your story.

For more information on how to create a clear, comprehensive, investor communications strategy check out the Investor Marketing section on Plexus Media’s website or give Plexus Media a call today – 1-844-6PLEXUS ext. 108