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SEC Issues Guidance On Testimonial Rule



The Securities and Exchange Commission (SEC) has issued new guidance on how registered investment advisors can use third-party testimony obtained through social media sites to promote their services under the Investment Advisers Act of 1940.

Publication of all testimonials from an independent social media site “on the investment advisor’s or investment advisory representative’s (IAR) own social medial site or website would not implicate the concern underlying the testimonial rule,” the SEC said.

The findings are contained in the SEC’s Division of Investment Management Update 2014-4 released in March in response to queries concerning the use of social media by investment advisors and comments about advisors posted to third-party social media sites.

In the past the “testimonial rule,” rule 206(4) of the Advisers Act, had been subject to abuse as advisors posted or published reviews and testimonials in advisors’ advertisements that could be construed as fraudulent and misleading, a violation of rule 206(4), the SEC said.

The ubiquity of social media has blurred the objectivity of testimony, and it is difficult for investors to make informed judgments about advisors.

Under the latest SEC guidance, investment advisors may not publish public commentary on the advisor’s own website or social media site that is “an explicit or implicit statement of a client’s experience with or endorsement of the investment adviser.”

An advisor may publish the same commentary “on its own” Internet or social media site if it comes from an independent social media site “where the commentators’ ability to include the public commentary is not restricted; and where the independent social media site allows for viewing of all public commentary and updating of new commentary on a real-time basis,” the SEC said.

Further, investment advisors may publish “only the totality of testimonials from an independent social media site and may not highlight or give prominence to a subset of testimonials,” on social media sites that allow users to sort using different criteria, the SEC said.

“We are pleased that the SEC has realized the value that a service like this provides for investors,” said Catherine McBreen, president of Millionaire Corner, quoted in a posting on the website of the consulting firm Spectrem Group. “Our research shows that advisers often believe they know what their customers want, but research with the customers shows otherwise. This will be an invaluable tool to bridge that gap and benefit both investors and advisers.”

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Millionaire Corner, publisher of the “Best Financial Advisors” service, which reviews more than 1,200 advisors around the country on, is one of the first sites to accommodate consumers following the new SEC guidance, according to Spectrem Group.

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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