Last month (March, 2014) the SEC released a “Guidance Update” in an effort to clarify the Testimonial Rule [rule 206(4)-1(a)(1)] and how it applies to social media use by, and third-party reviews about, registered investment advisors.
The Testimonial Rule states:
“[i]t shall constitute a fraudulent, deceptive, or manipulative act, practice or course of business . . . for any investment advisor registered or required to be registered under [the Advisers Act], directly or indirectly, to publish, circulate, or distribute any advertisement which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser.”
The broad adaption of the internet, specifically social media, has created the need for specific, situational interpretation of rule 206(4)-1(a)(1) for advisors.
Third Party Commentary
- Publishing original or selected statements regarding a client’s experience with, or endorsement of a financial advisor, on the advisor’s website or social media accounts, would be considered a testimonial.
- Commentary regarding the advisor on an independent, 3rd party social media site, where that 3rd party site allowed for both positive and negative results to be shown – and the advisor did not write the commentary, and could not suppress, edit, or re-order the commentary – would NOT be considered a testimonial,
- Reviews from an independent, 3rd party social media site (described above) can be displayed on an advisor’s website and social media accounts, as long all comments, positive and negative, are displayed, unedited, and are published in a content-neutral manner (i.e. alphabetical or chronological).
- Any commentary written, edited, or prioritized by the advisor, or any statement that resulted in product or service compensation to the writer for authoring the statement, would be considered a testimonial.
Advisor Advertisements on Independent Social Media Sites
- Advisors can advertise on 3rd party social media sites, even sites that may contain commentary about that advisor, as long as the advertisement is easily recognizable as a sponsored statement, and the inclusion of the advertisement did not influence how the public commentary is displayed on the 3rd party site.
Referencing 3rd Party Commentary in Non-Social Media Advertisements
- Re-publishing 3rd Party testimonials in an ad would be a violation of the Testimonial Rule
- Advisors can however, reference the fact that public commentary regarding the advisor may be found on 3rd Party social media site, and include a logo of that site on its non-social media advertising (i.e. “See us on . . .”)
- Social media sites often display a list of contacts/friends. According to the SEC, as long as these lists do not signify clients or former clients, but are simply listed as connections, this would not be considered a violation of the Testimonial Rule.
- An advertisement that contains a list, or partial list of clients, cannot be viewed as offering an endorsement so is not considered a testimonial.
Fan or Community Pages
- A Fan Page or Community Page established by a 3rd Party does not invoke the Testimonial Rule as long as the advisor is not connected to organization or operation of the page, or driving traffic to the community.
Marketing Implications for Advisors
1. Third Party review sites, such as Google My Business and Yelp create pages for your business whether you set up an account or not. You can however “claim” those pages. Claiming a page allows you to update information about your company, and to add a logo, bio and photos. Although you “manage” the page, you still do not have any control over the reviews that are given or how they appear.
Recommendation: Claim your Google My Business, Bing Places, and Yelp business page
2. Satisfied clients may want to “help” by providing reviews and testimonials on your social media sites. Make sure that you monitor your social media accounts for these types of posts and remove them when discovered.
Other options include turning off, or moderating your Facebook comments, not displaying LinkedIn “Recommendations”, and removing LinkedIn “Endorsements”.
Recommendation: Monitor for, then remove or block “testimonials” from your Social Media accounts.
As always your comments and questions are both welcome and appreciated!
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