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One of the reasons is the possibility that the advisor may appear to be implicitly endorsing their views by allowing them to appear on their blogs. Advisors are expected to be monitoring their sites, and if something shows up that's over the top, regulators look to advisors to do something about it.

The choices for dealing with a problematic post include deleting it or putting up a post of the advisor's own that makes it plain that the offending post is not a reflection of the advisor's own views. There's a clock ticking on this approach – comments on blogs can add up over time, and a response to a problem that's buried too far down on a chain may not be seen by advisors as useful. The longer the offending post is up, the greater the damage that regulators perceive it to cause.

And if the offense falls into the category of suspected criminal activity – say, a Ponzi scheme that the poster hopes to use the blog to facilitate – regulators expect advisors to act especially quickly. Don't drop a footnote into the blog; take the entire post down.

Mere disclaimers on the site won't afford an advisor absolute protection in the event that bad recommendations appear on the blog, since the advisor created the forum and is expected to be responsible for it. It's wise to create policies that outline what types of content are acceptable on the site and what others are not, and review such policies annually with an eye toward the experiences that have occurred. See Figure 32.1.


Although the Investment Advisers Act of 1940 contains language that allows financial professionals to promote investment recommendations, the staff of the Securities and Exchange Commission (SEC) has taken the position that advisors may not provide a partial list of past recommendations, even if it's accompanied by an offer to provide a complete list.

Recommendations on Social Media

FIGURE 32.1 Recommendations on Social Media

The advisor's choice now is either/or: Either you provide a complete list of your past recommendations, or you omit such recommendations entirely and offer instead to provide such a list.

When using social media to market past securities recommendations based on the best and worst performance, an advisor also is barred from showing the actual performances of such securities. Instead, the advisor may show only (1) the average weight of the best- and worst-performing holdings in a representative account during a specified period, and (2) the impact of those holdings on the representative account's return overall.

Advisors also may use social media to promote non-performance-based past recommendations provided:

■ Recommendations are selected by objective, non-performance-based criteria.

■ The same selection criteria is used for each quarter cited by the advisor.

■ There is no direct or indirect reference to any realized or unrealized profit or loss on the named securities.

■ The advisor maintains supporting records that present, among other things, the complete list of securities recommended by the advisor in the preceding year for the specific investment category covered, as well as the criteria used to select the specific recommendations listed.

■ The advisor includes a cautionary disclaimer, such as, “The securities identified and described do not represent all of the securities purchased, sold, or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable.”

Finally, advisors who use charts and formulas in their social media material may not claim that they will give investors certain results or help a person select securities, unless the limitations of the materials are prominently disclosed. Any assertion that a service or product is free must mean that it is free without any limitations or obligations.

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