The Securities and Exchange Commission packaged together five separate settled proceedings against registered investment advisers, investment adviser representatives, and a social media consultant for violations of the Testimonial Rule the use of social media and the internet.
If you get a pitch from someone to increase your firm’s presence in search results ask that person if they can gather up reviews from clients to publish. Read the rest of this post and we will revisit what to do with the answer.
SEC Rule 206(4)-1(a)(1) states that:
It 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.
When it adopted the rule, the SEC stated that, in the context of investment advisers, it found that testimonial “advertisements are misleading; by their very nature they emphasize the comments and activities favorable to the investment adviser and ignore those which are unfavorable.” The staff has stated that the rule forbids the use of a testimonial by an investment adviser 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.”
But marketing consultant Leonard S. Schwartz and his company Create Your Fate, LLC ignore the rule and looked for investment advisers as clients.
The first victim went unnamed in the SEC Order. Schwartz reached out to the clients of “Adviser A” and solicited testimonials. Schwartz then published some of those testimonials on “Adviser A”‘s Facebook page and Twitter feed. He also sprinkled in some videos on YouTube. “Adviser A” realized there was a problem, sent Schwartz information on the Testimonial Rule and asked for the testimonials to be deleted.
Schwartz continued the practice with other investment advisers: Greenfield, Eyster and Biel.
I would guess that the last three did not ask Schwartz to remove the testimonials as “Adviser A” did.
There is additional guidance form the SEC on social media. You can’t stop third parties from providing ratings on your firm on Yelp or other services. But if you control the page and publish the content, that’s prohibited. Recommendations posted by the adviser or its employees are strictly prohibited. Similarly, an adviser can’t pay for recommendations or offer discounts to clients to post commentary.
So if your marketing consultant/social media consultant/ search results consultant says to go ahead and solicit those reviews. Stop right there and show the consultant the door. It’s clear that publishing reviews of your firm is very problematic. Any “yes” answer with out a careful analysis of the SEC’s marketing rules and Testimonial Rule can lead to trouble.
Sources:
- SEC Charges Investment Advisers and Representatives for Violating the Testimonial Rule Using Social Media and the Internet
- SEC Order Against HBA and Biel
- SEC Order Against Greenfield
- SEC Order Against Eyster
- SEC Order Against Schwartz
- The SEC Endorses Yelp for Investment Advisers
- IM Guidance 2014-4
- DALBAR No Action Letter
