Financial Advisors BEWARE of LinkedIn Endorsements

BradFriedman
Brad Friedman President, The Friedman Group, LLC

Posted on November 9th 2012

Financial Advisors BEWARE of LinkedIn Endorsements

LinkedIn launched its new Endorsement feature several weeks ago and many of us are still trying to determine if we like this feature or not. There is no lack of discussion on the usefulness of the feature and the annoyance of those emails we’re getting every day that provide us with the first name only of a person who has endorsed us, hoping we will reciprocate. Putting aside for a moment the big-picture ramifications of this feature, I want to focus on the effects this feature may have on LinkedIn users in regulated industries, like financial advisors. 

Let’s take a giant leap here and assume your company is forward-thinking enough to have permitted you to participate in LinkedIn in the first place. It’s likely you are one of the many who fall under the SEC and FINRA regulations requiring your activities be monitored and forbidding testimonials. That being the case, you must take immediate steps to disable this feature so you don’t have to waste valuable time each day handling endorsements made by well-meaning people hoping to boost your ego while giving your Compliance Officer fits. 

Before we get too far into this topic, remember we’re talking about Endorsements, not LinkedIn Recommendations.  If you’re a financial advisor, you’re prohibited from having recommendations appear on your LinkedIn profile too. To be clear, for the rest of us, these recommendations help us establish trust and credibility. They help us prove we are who we say we are and we are the “expert” we claim to be. As a financial advisor, you aren’t permitted to take advantage of this LinkedIn feature. 

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Endorsements And Financial Advisors 

LinkedIn has spent a significant amount of time and money getting financial advisors active on the network. They clearly value the financial advisor community. I wonder if they gave enough thought to the ramifications this feature is having on those LinkedIn users who are regulated by the SEC and FINRA

At least with a Recommendation you have to approve it before it appears on your profile. With the Endorsements, all you have to do is have the Skills & Expertise section up on your profile and any connection you have may endorse you and it shows on your profile immediately. The only time you are involved in an approval process is if your connection wishes to add a new skill to your profile. 

“Past performance is no indication of future returns.” Ever heard that phrase before? Since 1940, the federal government has been trying to protect unsuspecting clients from financial advisors who might want to share their past experiences in order to gain new clients. That is why Recommendations and Endorsements are prohibited by most firms. 

Think about this though. Technically, an endorsement from a connection who is not a client for a skill that doesn’t relate to your ability to invest funds isn’t a violation of any regulation. The issue should only arise when a client endorses a skill directly related to your ability to invest funds or give investment advice. But I digress. 

Unfortunately, Broker-Dealers and RIAs are responsible for monitoring LinkedIn profiles so it’s easier for the larger firms to simply prohibit the use of any sort of recommendation or endorsement on the LinkedIn profile whether it is from a client or not. 

The Skills & Expertise Section 

My guess is that many large firms have already or will very soon; prohibit the use of this section on LinkedIn profiles. Though I think that’s a shame for many reasons, the least of which is that it will affect your ability to appear in search results, I think it’s a reality. 

As I see it, you have at least two options: 

  1. Delete the Skills & Expertise section from your profile entirely. Go into your profile and delete each of the skills you have listed and the section will disappear.
  2. Retain the Skills & Expertise section in your profile and monitor it carefully removing endorsements immediately as they appear. 

Here’s an idea: include a sentence in your summary telling people the SEC & FINRA prohibit you from displaying recommendations and endorsements on your LinkedIn profile and choose number 2 even though it’s a bit more time intensive. If you do choose number 2, to remove an endorsement click on “Edit Profile” and go to your Skills & Endorsements section. There you will see the people who have endorsed you. Click on the arrow next to the skill and a window will open with everyone who has endorsed you. Next to their name is a button that says “Hide Endorsement.” You may click on that button and the endorsement will disappear. Please understand this action is irreversible.

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Obviously, you are going to have to decide what is best for you and your firm in consultation with your Compliance Officer. Personally, I think if you are a reputably broker-dealer or RIA you should be permitted to have both recommendations and endorsements and people should know what your former clients think about you. Unfortunately, I don’t make the rules. Fortunately, I know what the rules are and I can help you comply with them.

BradFriedman

Brad Friedman

President, The Friedman Group, LLC

Brad Friedman is a “Recovering Attorney” living in Denver, Colorado. In 2010, Mr. Friedman parlayed his passion for technology and his business, legal and marketing savvy into the creation of The Friedman Group, LLC. Brad has developed a group of highly skilled people to work with individuals and businesses to develop strategies that enhance their online presence and engage clients, prospects and referral sources through the power of inbound and social media marketing.

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Comments

Kent Ong
Posted on November 10th 2012 at 5:07AM

Never thought that SEC and FINRA disallow endorsement? From my opinion, as long as the endorsement is real, nothing wrong, right?

I am from Malaysia, just express my opinion.

BradFriedman
Posted on November 10th 2012 at 6:05PM

Hi Kent, unfortunately in the U.S. if you sell securities and are regulated by the SEC and FINRA there are very specific rules about these kinds of things. That being the case, many U.S. companies do not allow their financial advisors to show recommendations or endorsements on their LinkedIn profiles because of these regulations. Here's another blog post that might be helpful http://bit.ly/SLBFsc

IncomeTrue
Posted on November 11th 2012 at 12:30AM

Imagineering...Creative Vision...People Skills!


"Some painters transform the sun into a yellow spot; others transform a yellow spot into the sun." ~Pablo Picasso

 The most important and the most highly paid form of intelligence in America is social intelligence, the ability to get along well with other people. Social intelligence is also known as "people skills" or human engineering:

 "Even in lines such as technical engineering about 15% of ones financial success is due to technical knowledge and about 85% is due to one's skill in human engineering." ~ Carnegie Institute of Technology, Dale Carnegie, "How To Win Friends & Influence People". 

 "True effectiveness is a function of two things: what is produced (the golden eggs) and the producing asset (the goose)." ~Stephen Covey

Social and Emotional Intelligence: People Skills:

Problem solver, unshakable optimist, sense of urgency, father, goal oriented, resourcefulness, mom, open networker, takes initiative, perserverance, encourages others, imagineer, team builder...and the most important 85% list keeps going.

 "The invariable mark of wisdom is to to see the miraculous in the common."~ Ralph Waldo Emerson

"When love and skill work together, expect a masterpiece." ~ John Ruskin

"What one skill, if you developed it, could have the greatest positive impact on your career? This is the key to your future." -– Brian Tracy

 Ed Brophy, Open Edorser's Group

 



BradFriedman
Posted on November 12th 2012 at 6:28PM

Thanks for sharing those interesting quotes.

Posted on November 11th 2012 at 9:05PM

Brad a great and timely article discussing the social in regulated industries. I guess I have a bigger question, which is, have the regulators got it right? My concern is that regulators are out of step with the population and while we understand the complexities of their remit, they also need to be thinking forward to how increasingly networked and social the world is and is becoming and whether their current models still fit? Do you know of any thinking going on at that level on the part of those who are drafting regs? Love to know. As it applies across multiple industries. A good read. Thanks.

BradFriedman
Posted on November 12th 2012 at 4:26PM

Dionne, you raise an excellent question. Do the regulators have it right? Frankly, I think they have a tough job. While trying to keep in step with current technology they feel they have to protect investors from the very few people who may act inappropriately if there were no regulations. It is a very difficult balancing act for the SEC and FINRA. They appear to understand that they need to be moving forward. Here's a link to a post a wrote on new regulations effective in February 2013 http://friedmansocialmedia.com/blog/2012/09/04/sec-approves-new-rules/ Here we see there is further loosening of the regulations and a realization of what's happening on the Internet. I don't think there will ever be free reign, but I do think the regulators are trying to be more realistic. As far as other industries, there are similars moves being made by the FDA for example.

Thanks for reading my post!

Posted on November 12th 2012 at 7:53PM

Thanks for getting back Brad - I am in Australia where our regulator ASIC is yet to deal with some of these questions. 

Something that has been on my mind lately is this - I saw TechCrunch released GovCrunch a policy site for regulators and is working on an open legislation project based on open source software framework - a fantastic tool and a brilliant idea in my view.

How do you think this sort of project would go in the finance sector? What I like about it is that it can be drafted by lawyers but incorporate the feedback of those who have to use and apply it. Best of both worlds.

My concerns with some regulators is that they develop legislation in isolation of those who have to apply it and that can lead lead to complexities that don't add value.

Still, regulators do have a tough gig you are right, as do leaders trying to work out the lay of the land with social. It's hard for them to win because the community demands they protect but also requires that they adapt. 

They don't need to be evangelists, but they could certainly tap into social technologies in a way that would make their lives easier, for example, in implementing legislation.

I also saw that the US had its first social IPO the other day, something that would be illegal here I understand. Again, regulators will need to balance innovation with protection.

But I'd be keen for your input on the open legislation in finance and your views.

BradFriedman
Posted on November 13th 2012 at 4:56PM

Sounds interesting to me. In the U.S. pretty much all legislation is "open" in the way you describe it. Bills are introduced by legislators after they have received input from all sorts of individuals, companies, lobbying groups, etc. Then, after the bill is introduced even more input is received from all these groups before a bill is passed.

When the SEC or FINRA wants to pass regulations they generally draft something and then illicit public comments for a certain period of time before the regulation is put in its final form. These public comments are often in written forma and they conduct public hearings before they finalize regulations.

Things here are alread pretty "open" at least as I understand you describing it.

As for the social IPO situation - we've had many over the past couple of years, LinkedIn and Facebook to name just two.

Posted on November 14th 2012 at 11:42PM

Brad sorry I didn't meant traditional IPOs like Facebook - there are many everywhere - I meant the first crowdsourced social IPO - as in - the IPO itself was done using social technologies - 

The Madison Project model uses open source software model to get comments and allow the community to mark up the bill - our legislation often goes out to the community too but who has the time or sometimes level of understanding and detail? 

Be interested in your thoughts.

IncomeTrue
Posted on November 14th 2012 at 11:28PM

Personal Branding And Profiling Your People Skills:

The most important and the most highly paid form of intelligence in America is social intelligence, the ability to get along well with other people. Social intelligence is also known as human engineering or “your people skills”:

Example:

Imagineer, problem solver, open minded, change leadership, never considers failure, sense of urgency, unshakable optimist, meaningful specifics, resourcefulness, open networker, takes initiative, encourages others, critical thinker, team synergy, shares knowledge…and the list keeps going.

“Some painters transform the sun into a yellow spot; others transform a yellow spot into the sun.” -~Pablo Picasso

"Even in lines such as technical engineering about 15% of ones financial success is due to technical knowledge and about 85% is due to one’s skill in human engineering.” ~ Dale Carnegie, Carnegie Institute, How To Win Friends and Influence people.

Most skills belong to skill sets. You have the ability to list up to 50 skills on your profile.

The “85%” or so of your people skills should be listed to highlight how you go about orchestrating your technical skills.

"True effectiveness is a function of two things: what is produced (the golden eggs) and the producing asset (the goose)." ~Stephen Covey

RIA Guy
Posted on November 26th 2012 at 11:43PM

Does it matter that we are not the ones posting it?

I'm with a state-registered, fee-only Registered Investment Adviser (not at all affiliated with FINRA). I just ran into this issue because I recently received some endorsements for investment advisory skills on my LinkedIn profile and I have some questions about it.

I had heard somewhere that LinkedIn recommendations and skill endorsements were frowned upon. My search for specific and authoritative regulatory guidance on this issue resulted in a reference to Rule 206(4)-1(a). Is this what you are referring to? Are you referring to any additional guidance from the SEC?

About Rule 206(4)-1(a):

I get that the rule says we can't "directly or indirectly, . . . publish, circulate, or distribute any advertisement" with a testimonial. And I get that a LinkedIn profile that I created could be considered an advertisement. But, I did not add the content about the endorsement. My connection did. As far as I can tell, I had nothing to do with directly or indirectly publishing circulating or distributing his endorsement. Because the content on a LinkedIn profile can have more than one author I wonder: could it be possible that endorsements or recommendations be considered separate from the "advertisement" portion of the profile?

What if I receive an endorsement or recommendation while I'm on vacation - it sits on my profile for a week before I get a chance to hide it. Or, let's say I see the email about the endorsement and intend to hide it, but I neglect it for a month or two. Are these violations? If so, is it a violation because I did not hide it? Not hiding something and directly or indirectly publishing circulating or distributing something don't seem to be the same thing. Hiding endorsements or recommendations happens after someone else has published one.

I may be wrong, but I believe the original intent of the rule is to prevent fraudulent or misleading advertising to protect the public. Hiding endorsements and recommendations appears to be removing information that could actually be helpful to the public, which appears to be why LinkedIn introduced those features. I suppose that allowing endorsements and recommendations could enable some people to make overgenerous or even fraudulent statements about advisors - but they would still be statements of one's connections, not the advisor (unless the advisor creates the recommendation by pretending to be someone else). In my non-lawyer opinion endorsements and recommendations on LinkedIn should technically be ok. Whether one's connections are real people or advisors are somehow connecting with themselves might be a snag, but I think these are separate issues.

To be safe, I hid the skill endorsements that I received.

What do you think?

BradFriedman
Posted on November 27th 2012 at 4:40PM

RIA Guy,

All good points and all reason why Compliance officers are generally just saying "No" to endorsements and recommendations from others on LinkedIn. It's just easier to give a blanket "No." I just heard from one of my clients who got word from his compliance officer about an endorsement he hadn't taken down. Apparently he had been out of town for several days and hadn't been on LinkedIn. The endorsement wet up and he missed it. The compliance officer called him on it and told him to take it down. These things happen. I think in those situations you are not likely to suffer a severe reprimand.

I agree with you that the original intent of th rule is to prevent fraudulent or misleading advertising, representatons, and statements that could mislead the public. I also agree that endorsements could actually be helpful to the public. Unfortunately, I am not in a position to be making the rules, though I do believe the rules are softening.

For now, my suggestion is that you have a talk with your compliance people and get a clear understanding of their expectations. Were I you, I would get those expectations in writing, but that's just the lawyer in me. Then, I would check back with them every couple of months to see if they've changed their mind any. Unfortunately, that's the best I can offer you. You might also want to take a look at a couple other blog posts http://bit.ly/Tj1wYs and http://bit.ly/SLBFsc that can direct you to some additional SEC Alerts and rules that may prove helpful.

IncomeTrue
Posted on November 27th 2012 at 2:10PM

Saying YES to Endorsements on LINKEDIN
Have you tried getting Linkedin or God on the phone lately?

Humans don't come with instructions, neither do skill endorsements. I don't feel bad though, even Dorothy from Oz was never told about the magic of the ruby red slippers because, "she had to learn it for herself."

This is my view on personal branding and endorsing people on Linkedin:

A complete stranger from a resume service will beef up or reframe your skills and qualifications on your professional resume. Why?

...Because, unfortunately, people from professional resume services have seen from the people they sometimes fail to help get hired that:

Employers don't hire employees, they hire certainty. They hire trust and likeability, they hire perceptions and reputations.

How you are known to employers is your most valuable asset when seeking employment, not necessarily how good your work or skills really are.

Like marketing Coca Cola or Pepsi, personal branding often works the same way for why people choose one employee and not the other.

Do you suppose Britney will ever join and endorse people on Linkedin?

BradFriedman
Posted on November 27th 2012 at 4:44PM

I think you are particulary correct about your comment about employers hiring perceptions and reputations, trust and likeability. Some of that comes from a face to face interview and the trick is getting one of those.

EricFischgrund
Posted on December 11th 2012 at 7:59PM

Brad, I appreciate your insight, which was very helpful as I continue to draw up a social media policy for my firm and our affiliated broker/dealers.

That being said, I'm curious as to why you mentioned LinkedIn Recommendations as being off-limits.

Am I mistaken, or does rule 10-6 not state: 

"Static content like a profile, background or wall information is usually considered an “advertisement.” Static content is generally accessible to all visitors and usually remains visible until it is removed. As with all advertisements and sales literature as defined, a registered principal for the firm must approve, prior to use, all static content."

 

I'm just curious. I can't find anything in the manual about recommendations or endorsements for LinkedIn being unnacceptable. 

Thank you for the discussion, and I look forward to your response.

Eric