New SEC Guidance on How Financial Advisors Can Use Social Media

Brad Friedman President, The Friedman Group, LLC

Posted on June 2nd 2014

New SEC Guidance on How Financial Advisors Can Use Social Media

SEC Guidance on How Financial Advisors Can Use Social MediaRecently, the U.S. Securities and Exchange Commission (SEC) issued a guidance to help financial advisors determine when it is appropriate to use social media. The guidance helps to clarify Section 206(4)-1(a)(1) of the Investment Advisors Act of 1940. This section of the rule makes it unlawful to publish, circulate, or distribute any advertisement that refers, direct or indirectly, to any testimonial of any kind concerning the advisor or concerning any advice, analysis, report, or other service rendered by the advisor (i.e. the "Testimonial Rule").  Even though the SEC has not specifically defined "testimonial," they have interpreted it to mean "a statement of a client's experience with, or endorsement of, an investment advisor." According to Institutional Asset Manager, whether public commentary on a social media site is a testimonial depends upon all of the facts and circumstances surrounding the particular situation.

Prior to this guidance, the SEC did say it was acceptable for an advisor to publish an article from an unbiased third party regarding the advisor's performance unless it includes a statement of a client's experience with, or endorsement of, the advisor. In addition, the SEC has permitted advisor's advertisements that include a partial list of advisor's clients that merely identifies the clients and nothing more.

New SEC Guidance Does Not Allow Unrestricted Access to Social Media for Financial Advisors

Under the new guidance, it may be possible for an advisor to publish independent social media commentary in an advertisement that includes a statement of a client's experience with an endorsement of the advisor. Per, publishing means hyperlinking or other electronic publications.

If an advisor invited clients to post commentary on the advisor's personal site, this would not be permitted. Nevertheless, the SEC believes that testimonials on independent social media sites are permissible if the investment manager has no ability to affect which public commentary is included, the commentator's ability to include public commentary is not restricted, and the independent social media site allows for viewing all public commentary and updating new commentary on a real time basis.

So What Does the New SEC Guidance on How Financial Advisors Can Use Social Media Really Mean?

The SEC guidance on social media and testimonials combats an ongoing issue that began to really heat up in the fall of 2013 as certain companies went under the microscope for using paid testimonials on review sites such as Yelp. In a perfect world, a business owner would like to see nothing more than raving 5-star testimonials and positive feedback supporting their company or cause. However, this is unfortunately not the case and even one poor documented customer experience can bring down several legitimate glowing reviews. If you’re going to point the audience to reviews of your company via social media or sites such as Yelp, the SEC guidance suggests that the viewers need to see the whole picture, including both positive and negative reviews.

What are the next steps? Good question. As more and more people turn to the Internet to research a company or particular product, it’s a great idea to provide resources on your social media platforms including testimonials or reviews to help promote or influence their consumer behavior and/or buying decisions – just make sure you are playing within the rules and guidelines set by the SEC. While written testimonials are nice, there’s always the hesitation that the written word may be too good to be true, whereas considering the use of video testimonials (short 30-90 second YouTube clips is all you need) from customers or advocates for your company’s products and services adds a personal touch that goes beyond what can be achieved from a written testimonial.

In summary, even though the guidance does provide advisors with an opportunity on social media, it carries with it a number of conditions. This will likely require advisors to monitor social media sites on an ongoing basis and ensure third parties are also complying with the new guidance.


Brad Friedman

President, The Friedman Group, LLC

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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Posted on June 4th 2014 at 1:26PM

Thanks Brad for this helpful article. Any help you can share on how this applies to LinkedIn and advisors that have individual business or company profiles? Does this mean no endorsements, solicited or otherwise?