Three Stars for the SEC! (Guideline Allows Advisors to Share Third-Party Commentary)
Yahoo! The growing importance of social media commentary and web-based review sites is being recognized by the Securities and Exchange Commission (SEC) Division of Investment Management. Finally, investment advisors can join the world or restaurants, hotels, and other business entities by sharing endorsements from sites like Yelp and Angie’s List.
In the new guideline to rule 206(4)-(a)(1) of the Investment Advisers Act of 1940 the SEC states advisors can publish public comments about their services, posted on third-party sites, as long as advisors include both positive and negative reviews. Advisors must have no connection to the third-party site or influence on the comments, and the comments must be published as-is. Advisors can also post a mathematical average of comments from third-party review sites.
Rule 206(4)-(a)(1) was created to forbid the use of a testimonial by an investment advisor in advertisements “because the testimonial may give rise to a fraudulent or deceptive implication, or mistaken inference, that the experience of the person giving the testimonial is typical of the experience of the adviser’s clients.”
However, with the new SEC guideline advisors can now use third party commentary as a sales and marketing tool to help them attract clients. “We recognize that social media has facilitated consumers’ ability to research and conduct their own due diligence on current or prospective service providers,” notes the SEC guideline.
To leverage this new opportunity, advisors should be aware of the various online rating systems so they can understand and maximize their business exposure. Common review sites include Yelp, Angie’s List, Google Reviews, and Yahoo Local Listing. And, last year Evolution Finance launched Wallethub.com, a social networking site where clients can review financial professionals and companies.
Key to the new guideline is the inclusion of all third-party commentary, not just the positive testimonials. Acknowledging third-party reviews may feel intimidating because of the potential for negative comments. However negative comments still hold value by validating the truth of glowing remarks and by shedding light on needed improvements. (Unfortunately, the SEC didn’t provide any clear guidance on handling negative reviews.)
In addition, the SEC recent guidelines give consumers a chance to conduct thorough due diligence on current or potential advisors by reading other reviews and connecting with clients. So if your practice is doing things right, good news could travel fast and help your business grow.
As with any web endeavor, advisors should check with their compliance departments to understand requirements, as well as ensure they fully understand the rules. For instance, although the creation of a third-party community or fan page about an adviser or investment firm doesn’t violate rule 206(4)-1, the SEC “strongly cautions” investment advisors against publishing content from these sites or driving traffic to them through hyperlinks. (Yep. The guidance seems a bit murky here.)
From a marketing, not a compliance, standpoint, the key guideline take-aways include:
- Advisor websites, social media pages, and advertisement can include links or logos to third-party review sites that include all positive and negative commentary.
- Although advisors can publish all comments, with the ever-changing nature of online review sites, advisors will find it nearly impossible to keep this up-to-date.
- Advisors cannot write reviews, or have someone write commentary for them, on these third-party sites. No surprise that this form of fraudulent self-aggrandizement is banned in financial advisor social media.
The SEC’s allowance of publishing third-party endorsements is just another reminder that we live in a changing world, and the regulators now recognizes the link between the online world and business growth.