SEC Testimonials

Monday, September 14, 2015

We have received numerous questions recently regarding the SEC’s guidance on testimonials. Everyone wants to know how to take advantage of the ability to publish comments about themselves and their firm that are available on independent third-party sites.

SEC Rule 206(4)-1(a)(1) prohibits Registered Investment Advisers and Investment Adviser Representatives (“IAR”) from using client endorsements in their advertising. However, the SEC’s guidance has laid out how for advisors to share, on their own social media and websites, public comments about their services that are posted on independent websites (such as Yelp, Angie’s List, etc.).

The following is an overview of the rules to follow in order to post third party content:

  • All Content. The advisor must publish all reviews, both positive and negative; The adviser cannot edit or highlight anything; The adviser cannot suppress any or all of the publication, or to organize or prioritize the order in which the commentary is presented.
  • Independence. The independent social media site must provide content that is independent of the investment adviser or IAR; There can be no material connection between the independent social media site and the investment adviser or IAR that would call into question the independence of the independent social media site or commentary; The adviser may not make a subjective analysis of the testimonial that was published on the third-party site.
  • Mathematical Averages. Investment advisers or IARs may publish testimonials from an independent social media site that include a mathematical average of the commentary provided that commenters themselves rate the investment advisers or IARs based on a ratings system that is not designed to elicit any pre-determined results that could benefit any investment adviser or IAR.
  • Advertising on Third Party Site. Investment advisers may advertise on the social media site displaying the testimonial as long as it would be readily apparent to a reader that the investment adviser or IAR’s advertisement is separate from the public commentary featured on the independent social media site and the receipt or non-receipt of advertising revenue did not in any way influence which public commentary is included or excluded from the independent social media site
  • Print Advertising. An IAR could state in a newspaper ad “see us on [independent social media site],”; An investment adviser or IAR may not publish the actual testimonials from the independent social media site on the newspaper ad.
  • Linking. Advisers may post the logo and a link to the page where the third-party reviews live; Adviser should monitor these sites to make sure they remain comfortable linking to these commentaries.

Remember advisers cannot do anything that looks like they are encouraging positive comments, so advisers must refrain from posting “Thank you” on third party sites. Thank you’ s should be done privately. In addition advisers may see negative comments on third party sites and should avoid reacting defensively. Advisers should do nothing more than post a comment to ask the individual to give them a call to discuss. Social media sites are very public forums and require the utmost discretion.

If advisers of IARs have any questions about how to use third party posts and not violate the testimonial rules, please give us a call. Red Oak is here to help.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.