Financial Advisors seeking to market their businesses increasingly look to social media outlets as an option for reaching their target audience. There’s logic behind that reasoning, based on research. The Pew Research Center found, among other things, that 68 percent of U.S. adults report they are Facebook users and that three-quarters of those users access Facebook each day. Another survey commissioned by Putnam Social Advisor found 86 percent of financial advisors using social media said it helped them gain business. At the same time, financial advisors should understand industry regulatory agencies are paying attention to these trends as well.
In mid-2018 the SEC published five settlement orders that reaffirm application of securities law to social media use, the use of which has been broadly interpreted as a form of advertising. All five cases involved the prohibition against the use of testimonials. The rule deals with investment advisory advertisements and was first published under the “Investment Advisers Act of 1940”, when the idea of social media communication was decades away. The SEC views such advertisements as misleading; because by their very nature they emphasize the comments and activities favorable to the investment adviser and ignore those which are unfavorable. The SEC has held to that position through the years as communications channels ebbed and flowed.
An article in the Harvard Law School Forum on Corporate Governance and Financial Regulation said, “Taken together, the Settlements demonstrate that the SEC and its Staff are actively applying the Staff’s 2014 Guidance on the Testimonial Rule...”. That guidance seemed to recognize the two-way nature of social media, where interaction and comment are ubiquitous. None the less, it reinforced that SEC-registered investment advisers (RIA) may not directly or indirectly be involved in obtaining public commentary by a client. The guidance specifically stated invitations for client comments on social media, blogs or websites made those subsequent posts prohibited testimonials.
Some Reminders of What to Avoid
The key language of the testimonial rule prohibits the use of “any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser.” Interestingly four of the recent settlements involved allegations where client testimonials were actively solicited, which would indicate a violation regardless of the medium used to distribute them. One of those cases involved a marketing consultant, not the RIA itself. The remaining settlement involved two videos that contained client testimonials which were found to be advertisements that were published on the RIA website and on YouTube. The main take-away is for RIA’s to avoid creating any advertising content with directly or indirectly solicited testimonials, regardless of the channel where the content might be distributed.
Some Thoughts on What You May Consider Doing
The prohibition on testimonials makes marketing in our industry much more difficult when compared to other industries where companies are free to use them. In addition, application of the testimonial rule is indicative of the way both the SEC and FINRA have approached the emergence of social media. Neither has issued specific rules; both have taken existing rules and applied them to digital media channels by issuing guidance and alerts. For FINRA, you can find recent guidance here: Regulatory Notice 17-18 Guidance on Social Networking Websites and Business Communications.
Financial advisors should review the most current guidance from regulatory agencies when developing their social media communications strategy with an eye toward maintaining compliance. It’s also suggested to put the policy developed in writing, which may involve elements that go beyond the regulatory guidance. Review the policy from time to time and provide training for all necessary personnel so they follow the policy.
With a compliant social media policy in hand, then you can tackle executing a strategy that will provide results for the firm. There are myriad ways of doing that. But a starting point may be reviewing this blog by Michael Kitces, who is one of the more thoughtful writers about the industry. The reminders about the marketing stages of awareness, engagement and acquisition in the context of social media should provide food for thought as your firm navigates the digital world.