Whether you just purchased a latte at a local coffee shop or rented a beachside house for a week in Cape Cod, the end of that experience typically offers the opportunity for the business to solicit a recommendation or review based on your experience. These reviews, whether provided in the form of a direct email or more prescribed and visible method like a Google My Business or Yelp listing, are then used by the business to showcase the quality of their product or service. In the digital world, reviews influence purchasers who seek third-party feedback before making a buying decision. The business can sift through reviews and showcase the best ones on their website or social media profiles. It’s a marketer’s dream, but not when it comes to the Securities and Exchange Commission’s Testimonial Rule.
Unfortunately, because of this ability to “cherry pick,” to use the SEC’s language, reviews and specifically testimonials are not permitted according to the SEC testimonial rule 2014-04. From a marketing, truth-in-advertising perspective, I completely understand the need to protect investors from inaccurate, performance-related statements that might provide unrealistic expectations and, in some cases, intentional deception.
“The SEC has only a few stated rules relating to advertising that are, overall, broad in nature,” says USA Financial’s director of advertising compliance, Dawn Thomason, “However, the prohibition of testimonials, of any kind, is specific and the very first on the list of tenants.”
As it relates to financial advisors, other opportunities that pose a problem with the rule include LinkedIn’s endorsement of skills and written recommendations. Endorsements only allow positive reviews and no opportunity for dissenting opinions. Recommendations can be hidden by the user if it doesn’t paint the desired picture.
The Good News About Reviews and Ratings
While the SEC is consistent in not allowing advisors to solicit or publish reviews, SEC guidance does provide allowance for “comments on an independent social media site only in situations when commentary is not restricted and the social media site allows for viewing and updating of all commentary in real-time.” In addition, an advisor cannot pay for advertisements that are next to the commentary. “The use of social media in marketing can be a powerful tool for an advisor,” says Thomason, “but can also be a huge liability for the firm if not done correctly and thoughtfully.”
What does all that mean in application? Google My Business, Yelp, Facebook, and other online business social media-type profiles can be created automatically based upon publicly available information and by general users who may not be affiliated with the business. The reviews found on these platforms cannot be cherry-picked and are published in real time, adhering to the two main requirements of SEC guidance. An even larger advantage for the business is that it has the ability to “claim” these public listings and update the profile information, but, as of the publishing of this article, they do not have the ability to moderate reviews. Therefore, these profiles would be permitted as it relates to SEC guidance so long as the advisor did not actively direct anyone to submit such a review.