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April 01, 2014 at 10:35 AM
The Securities and Exchange Commission released on Monday long-awaited guidance clarifying advisors’ use of testimonials on social media.
The guidance update, issued by the agency’s Division of Investment Management in a Q&A format, addresses questions raised by advisors concerning the nature, scope and application of the rule that prohibits investment advisors from using testimonials in their advertisements.
The guidance, the IM division says, also addresses questions concerning investment advisors’ use of social media, specifically advisors’ use of social media and their publication of advertisements that feature public commentary about them that appears on independent, third-party social media sites.
The guidance seeks to assist firms in applying section 206(4) of the Investment Advisers Act of 1940 and rule 206(4)-1(a)(1) or the testimonial rule, to their use of social media.
The IM staff notes that consistent with previous staff guidance, in certain circumstances, “an investment advisor’s or investment advisory representative’s (IAR’s) publication of all of the testimonials about the investment advisor or IAR from an independent social media site on the investment advisor’s or IAR’s own social media site or website would not implicate the concern underlying the testimonial rule.”
Whether public commentary on a social media site is a testimonial depends upon all of the facts and circumstances relating to the statement, the IM staff says.
Also, while the term “testimonial” is not defined in the rule, the staff has consistently interpreted that term to include a “statement of a client’s experience with, or endorsement of, an investment advisor.” Depending on the facts and circumstances, the IM staff says, “public commentary made directly by a client about his or her own experience with, or endorsement of, an investment advisor or a statement made by a third party about a client’s experience with, or endorsement of, an investment advisor may be a testimonial.”
Coincidental to the IM update release, compliance consultant Nancy Lininger was fielding a question from an advisory firm client asking her whether posting a notice on the firm’s website about the unexpected death of their founder and president would be “a prohibited testimonial.”
