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New SEC guidance on testimonials for financial advisers on third-party social media sites

shutterstock_179555099_smallOn March 28, the U.S. Securities and Exchange Commission (SEC) released new guidance (IM Guidance No.  2014-4) clarifying how the testimonial rule should be interpreted with social media. This guidance provides financial advisers with more leniency for use of client commentary that appears on independent third-party social media websites.
The SEC made clear that as long as client reviews appear on independent social media or review sites, and that the adviser has no ability to affect which public commentary is included or how the commentary is presented, then the mere reference to such commentary does not violate the rule on testimonials.
For example, it is permissible for an adviser to link from their social media page to reviews on public sites like Yelp or Angie’s List. The third-party site, however, must allow the public to see all commentary about  the adviser–both good and bad–and such commentary should not be filtered in favor of the adviser. To the right is an example of such a Yelp page, which contains unsolicited public reviews on an adviser.
It remains the same that advisers should have no influence on the third-party commentary. This guidance clarifies that commentary should not be displayed on social pages or profiles that could be curated by the adviser. For example, an adviser should not accept reviews from clients on a Facebook page that the adviser owns, because in that case they would be able to control the content.
This guidance also clarifies how the SEC considers non-investment related content in advertisements. In contrast to prior interpretations, this makes clear that non-investment related commentary in an advertisement, such as comments on religious affiliation or community involvement, can not be considered a violation of the rule 206(4)-1(a)(1).
The SEC also addresses client-lists in relation to social media friends or fans. According to the guidance, it should not be clear from an adviser’s social media page or profile who are clients and who are friends/other connections. For example, they should not have a Twitter list called “clients.” And, the social property should not imply that the contacts/friends have experienced favorable results from the adviser’s services.
Although this guidance provides clarity for advisers’ use of third-party commentary on their social media sites, some firms elect to continue to require all content on social media to be pre-approved before it is published. With this guidance, you should adjust your policies and procedures based on your own risk tolerance. You can read specific advice for addressing the testimonial rule across social media sites here.
The complete guidance from the SEC is visible on their website here.
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