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TESTING FOR TESTIMONIALS
The SEC has also thought carefully about the implications that social media holds for the use of testimonials. Even before the age of social media, financial advisors and managers have been pressed to adhere to this portion of compliance, which aims to protect investors from fraudulent claims of advisor expertise.
Section 206(4) of the Investment Advisers Act of 1940 generally bars these financial professionals from deceptive or manipulative practices. The law specifies:
[i]t shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business . . . for any investment adviser registered or required to be registered under [the Advisers Act], directly or indirectly, to publish, circulate, or distribute any advertisement which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser.
Using such testimonials in ads is inherently misleading, the agency says, since they tend to emphasize favorable opinions and ignore unfavorable ones. In its 2012 guidance, the SEC extended this thinking to social media. Depending on circumstances, it said, the use of “like” buttons on social sites could be deemed to be a testimonial as defined under the Advisers Act “if it is an explicit or implicit statement of a client's or clients' experience with an investment advisor or IAR.
“If, for example, the public is invited to 'like' an IAR's biography posted on a social media site, that election could be viewed as a type of testimonial prohibited” under the law, the agency said.
The SEC has left some wiggle room for interpretation here, with its use of language like “could be a testimonial” and “depends on all the facts and circumstances.” Clearly, using “like” in a way that speaks to a person's experience with the advisor is something the agency wants to prevent.
Some in the industry, however, are not letting the SEC's antipathy toward “like” prevent them from using such functions within their own web presence, albeit in ways that accord with their view of what's compliant. Major registered investment advisors (RIAs) and broker/dealers have Facebook pages with “like” buttons, as do individual advisors. They don't see “like” as a comment on their abilities as a financial professional.
Brittney Castro, owner of the Financially Wise Women practice, uses a “like” button on her business' Facebook page. You have to “like” someone to follow their posts on their site, she notes, so people who “like” her have a desire to know what she's saying rather than testifying to what she can do as an advisor.
Michael Kitces, financial planner and author of the industry blog Nerd's Eye View, observes that the SEC has never explicitly banned the use of “likes.” “It's worth noting that ultimately, all the SEC ever said in their 2012 guidance is that a 'Like' could constitute a testimonial given certain facts and circumstances, if it violates the principles of being a client testimonial,” he says. “Welcome to principles-based regulation.”
New guidance issued by the SEC in March 2014 sought to refine some distinctions on testimonials, although not specifically regarding “like” buttons.
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