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How should financial advisors and representatives handle Facebook's new star ratings?

Facebook is testing out a five-star rating system that allows users to rate and review a professional’s Facebook business page. These ratings can be made by any user, which means the user does not have to demonstrate that they know the professional or are a customer.
For financial professionals, this poses a question: Does this star rating feature on Facebook present issues for Registered Investor Advisors (RIAs) pursuant to the “Testimonial” Rule 206(4) of the SEC Investment Adviser Act of 1940?
Rule 206(4) states that advertisements cannot “use or refer to testimonials” (which include any statement of a client’s experience or testimonial). This is true of advertisements in print materials as well as advertising on electronic forums such as a Facebook Business Page.
The SEC’s staff has consistently interpreted testimonials to include a statement of a client’s experience with, or endorsement of, an investment adviser. Therefore, the use of “social plug-ins” such as the new Facebook “Star Ratings” feature could be deemed a “testimonial” under the Advisers Act.
While members should consult with their own legal and compliance departments as to the application of this feature with regulations restricting advertisements and other communications with the public, we suggest that RIA’s with a Facebook page should not accept ratings or reviews on the social network.
Facebook has not made it possible to block this new ratings feature, but RIAs can use a workaround to prevent their page from receiving star ratings. This workaround requires the financial professional to remove the map of business location (see illustration  and steps below). Please note that by doing so the map of the business location will not appear on the business page.

  • On your business page, go to the “About” section under the logo.
  • On the next page, hover over the “About” section and click “Edit.”
  • To the right of the “Address” section, click “Edit.”
  • Uncheck the box underneath the map that says “Show this map on your page and enable check-ins.”
  • Click “Save Changes”

Hearsay Social has indicated to Facebook that this feature might present a compliance risk for RIAs, and we are working with them on behalf of our clients to advocate for a solution that allows the map, but does not prompt users for check-ins or reviews.
If you have any additional questions about compliance on social media or Facebook star ratings, please feel free to leave a comment below or contact us directly.
We will keep you posted as more features change!

Disclaimer: The material available on this blog is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of the information provided herein.

Yasmin Zarabi

Yasmin is responsible for Hearsay's legal affairs including commercial, compliance, regulatory and privacy matters. She is a thought leader in compliance for financial services, has been published in industry press and speaks at events around the world.

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