On March 28, 2014, the Securities and Exchange Commission (“SEC”), Division of Investment Management, issued guidance that clarifies when it is permissible for an investment adviser or an investment adviser representative (“IAR”) to publish public commentary (“testimonials”) about the investment adviser. In light of the widespread use of social media by consumers, the SEC issued guidance in the form of a Q&A that now generally permits an investment adviser to publish testimonials through social media, so long as such testimonials originally appear on independent, third-party social media sites, are unedited and the investment adviser or its IAR has no direct or indirect influence or control over the independent site or its contents.
Section 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) generally prohibits an investment adviser from committing any fraudulent, deceptive or manipulative acts. Pursuant to Rule 206(4)-1(a)(1) (“testimonial rule”), investment advisers may not use any advertisement that refers, directly or indirectly, to any testimonial about the adviser, its advice, analysis, report or any other service provided by the adviser. The rule was adopted to prevent investment advisers from presenting misleading advertisements that created the inference that a favorable experience presented in a testimonial is the typical experience of all of the investment adviser’s clients. Although the term “testimonial” is not defined in the rule, the SEC has stated that a testimonial includes a “statement of a client’s experience with, or endorsement of, an investment adviser,”  and is dependent upon all the facts and circumstances pertaining to the statement.
SEC’s guidance specifically lays out the following do’s and don’ts for investment advisers and their IARs who wish to publish testimonials on their social media sites while remaining compliant with the testimonial rule:
- Investment advisers may not invite clients to post commentary directly on the investment adviser’s website, blog or other social media site.
- Investment advisers may publish on their own social media site all unedited public commentary only from an independent third party social media site in exactly the form the commentary appears on such site so long as the investment adviser or its IAR has no influence over the content of the independent site or material connection to the site.
- Investment advisers or their IAR may not, directly or indirectly, post commentary of their own on the independent third-party site or provide analysis of the posted commentary.
- Investment advisers may, however, sort the commentary alphabetically, chronologically or in another content-neutral manner or provide a sorting mechanism to facilitate the user’s viewing of the commentary.
- Investment advisers may not pay anyone to post commentary; however, they may pay the independent social media site to post their advertisements, so long as such revenue does not influence which public commentary is included or excluded from the site.
- Investment advisers’ social media sites may contain a communal list of contacts or “friends” that are not grouped or listed so as to be identified as current or past clients.
- Investment adviser advertisements on independent social media sites will not be deemed to create prohibited testimonials so long as the advertisement is clearly separate from the commentary thereon.
- Investment advisers may make reference to the fact that public commentary concerning the adviser is available on an independent social media site through their non-social media advertisements (newspaper, television, or radio), but publishing of their testimonials on such non-social mediums violates the testimonial rule.
- The SEC cautions investment advisers to consider whether they are in compliance with the testimonial rule when an investment adviser publishes the contents of, or provides a direct link to “community” or “fan” third party websites that feature content other than testimonials.
Investment advisers should review their compliance policies and procedures to ensure that they are reasonably designed to address the investment adviser’s use of social media and publication of testimonials in accordance with this new guidance.
To view the SEC’s Guidance click here.
 See Cambiar Investors, Inc., Staff No-Action Letter (pub. avail. August 28, 1997).