Investment Management Advisers, Testimonials & Social Media

Investment Management Update

Date: July 02, 2014

In March 2014, the Division of Investment Management at the Securities and Exchange Commission (SEC) published an IM Guidance Update addressing concerns arising from the rating of investment advisers on social media sites. Specifically, the Guidance Update clarifies the application of Rule 206(4)-1(a)(1) under the Investment Advisers Act of 1940 (Advisers Act) to social media sites showcasing consumer reviews, such as Google, Yelp and Angie’s List, and sets parameters for the use of such sites by investment advisers in connection with their marketing materials.

Rule 206(4)-1(a)(1) prohibits investment advisers from using testimonials in their advertisements. The rule does not define “testimonial,” but as noted in the Guidance Update, the SEC staff has interpreted it to mean “a statement of a client’s experience with, or endorsement of, an investment adviser.”

The Guidance Update instructs that an adviser may not post public commentary that is an explicit or implicit statement of a client’s experience with, or endorsement of, the adviser on the adviser’s website or social media site, as this use of the commentary is considered testimonial and thus prohibited under Rule 206(4)-1(a)(1). However, the Guidance Update provides certain circumstances in which an adviser’s publication on its website or social media site of all the testimonials about the adviser from an independent social media site would not implicate the concerns underlying the testimonial rule.

To comply with this new guidance, advisers must present testimonials in a content-neutral manner that is not false or misleading (i.e., with positive and negative commentary receiving equal prominence). Further, investment advisers may only publish testimonials from a third-party website where the third-party website and the authors of the testimonials are independent from the adviser. This means that an adviser may not author or edit the commentary, compensate an author of the commentary (including with discounts or offers of free services), or suppress publication of all or part of the commentary. If an adviser wishes to follow this guidance, all commentary, including both positive and negative comments, must be included, though an adviser can provide users with the option to sort by different criteria. 

In addition, an adviser can show the independent website’s mathematical average grade of the public commentary. For example, if an adviser receives an average grade of four stars from reviewers on Google, then, provided the adviser or independent website does not provide any sort of analysis of the grade, the adviser may use the commentary and average grade on its website. 

Finally, the Guidance Update provides that referring to independent social media sites in an adviser’s nonsocial media advertisement (e.g., a newspaper ad that states “See us on Yelp”) would be acceptable. However, printing the actual testimonials from the independent social media sites in a newspaper ad, for example, would create issues with the testimonial rule. Further, the Guidance Update continues to caution against publishing content from or linking to “fan” or “community sites” involving discussion of the investment adviser and/or other investment topics, as this sort of uncontrolled discussion could implicate issues related to the advertising provisions of the Advisers Act.

Independent review websites for professional services, such as investment advisers, are in their infancy. As a result, advisers may not give this Guidance Update much thought. However, with the growth of websites such as Angie’s List, which provide ratings on all types of businesses, we expect that it is only matter of time until advisers begin to take advantage of this social media opportunity.


For more information, please contact:

Michael V. Wible

Christopher A. Moore


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