At the recent NRS Fall Compliance Conference I was talking with another attendee about LinkedIn and the SEC rules on advertising. The basic question was can her employees use it. That became a more nuanced discussion of the various features.
One topic was the messaging feature of LinkedIn. You can send massages to people on LinkedIn. It’s not a great tool, but some people like it. Her interest was because some of her employees wanted to use it to communicate with clients and potential clients. That was the first red flag.
As a registered investment adviser, her firm was subject to the record-keeping rules. Rule 204-2(a) (7) requires an investment adviser to keep records of certain communications between the adviser and its clients. If the communication is happening on a third-party platform, it’s outside of the investment adviser’s reach. That means getting a third-party application to capture that communication. There are several vendors who claim to be able to do so. ( Smarsh is one. Global Relay is another. )
The other question that I, and those nearby, latched onto was the “testimonials” implication of LinkedIn.
The advertising limits under Rule 206(4)-1 limit the use of any communications “which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, anaylsis, report or other service rendered by such investment adviser.” LinkedIn has several features that could be considered a testimonial.
The first is the recommendation feature. If a client writes a recommendation of the investment adviser, you’ve violated the rule. A recommendation would be considered a testimonial. The SEC’s view is that a testimonial may not represent the experience of a typical client. You can agree or disagree with the rule, but the rule is still in effect. My opinion was to have her employees shut off the recommendations feature and not allow them to use it.
The other feature that raises concern is the skills and expertise feature. That allows your connections to endorse particular skills. I personally find this feature to be wonky. The list of skills and expertise that I see in my profile seem a bit random and off base. Although some are right on target.
If a connection endorses a skill and expertise, I think that is a testimonial. Given that the endorsement could be from a client, then publishing that endorsement would violate the advertising rule’s ban on testimonials. My recommendation was to ban use of that feature.
What are your thoughts on the use of LinkedIn?