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SEC Guidelines

Delivered November 7th, 2019. Contributors: Nyaingo J., Lisa M. and

Early FindingsSEC Guidelines
Part
01
of two
Part
01

SEC Proposal Impact

Views of experts or thought leaders regarding the Securities and Exchange Commission (SEC) proposed changes to marketing and advertising rules are presented below under distinct subheading. The subheadings identify the experts or thought leaders, while their opinions and remarks are presented below each name. These remarks are captured in news articles released on November 5th and 6th, 2019.

Karen Barr

Michael Caccese

Herb Perone

Todd Cipperman

Clara Shih

Research Methodology

Your research team managed to uncover what experts or thought leaders are saying about the new SEC proposal and how it will impact advertising and marketing strategy. We began by reviewing recently published reports on the proposed SEC regulations on advertising and marketing published by leading business and corporate websites, including Investment News, Wealth Management.com, and Non Perele. These sources contained reports featuring reviews and opinions of experts and thought leaders regarding the proposed SEC changes to advertising and marketing rules.
Part
02
of two
Part
02

SEC Regulatory Challenges

The Securities and Exchange Commission (SEC) rules on advertising have not been substantially overhauled since 1961. This in itself has caused much confusion and concern as outdated rules are applied to the new digital world. Multiple entities such as the SEC and the Financial Industry Regulatory Authority (FINRA) have published numerous updates and interpretations that have been challenging to understand and to practice.

The Advertising Rule Is Outdated

  • The advertising rules by the Securities and Exchange Commission (SEC) have not been substantially overhauled since 1961. These rules do not take into account the advances made in technology and communication. Therefore, there is much confusion around the interpretation of these rules. When this rule was made, investors relied mostly upon printed information that was mailed to them, what they read in journals, television, and newspapers. Methods of gaining information have changed drastically, but the rule has not.
  • These outdated rules essentially prevent an investment adviser from using communications and marketing that have been accepted and are standard business practices in other industries.
  • The landscape has also changed. When this rule was written they were focused on retail investors. Today we also have institutional and accredited investors. The law clearly has not grown with the industry.

The Rules Are Difficult To Understand

  • The regulations are complex and hard to implement and understand correctly since the rules are so old and have been amended numerous times. Not only are there rules from the SEC and FINRA, but there are also "No-Action" letters which attempt to explain the process further and must be interpreted correctly.
  • In many cases, advisors have no idea they are breaking rules due to how hard the rules are to interpret.
  • There is quite a bit of room for interpretation of these rules. For instance, an advisor advertises that he has a PhD., but does not say what field it is in. In some cases, this could be deemed misleading even though it is a true statement.

Advertising Definition

  • The advertising rule, with its current definition, restricts the ability of an advisor to give complete answers to investors that might help them make a more complete decision. For example, providing a client with examples that show how the advisor applies certain principles is not allowed.
  • Essentially any correspondence sent to more than one person is considered advertising. 60 years ago this was not a problem, but when one thinks of how we communicate today this quickly becomes an issue. A financial advisor must think about every single piece of communication they send, including their pitch books.
  • This definition becomes even more complicated when you look at it in terms of email. An adviser can essentially customize a mass email to customers making it unclear how it falls under the rule.
  • The definition of an advertisement is so broad that it can even encompass statements by third partied on social media.

Testimonial Definition & Rule

  • "Using testimonials (i.e., statements attesting to or endorsing the firm’s services) in marketing or advertising materials, including websites, social media, article reprints, and/or presentations" are prohibited under Rule 206(4)-1.
  • The advertising rule states that certain types of advertising are fraudulent, no matter the intent. Testimonies from clients fall under this umbrella. Considering that a large part of potential client research is done through reviews and testimonials, this puts advisors, especially new ones, at a disadvantage.
  • While the term “testimonial” is not defined in Rule 206(4)-1, SEC staff have consistently interpreted the term to include a “statement of a client’s experience with, or endorsement of, an investment adviser.”
  • Testimonials fall under that category of "misleading content" because "by their very nature they emphasize the comments and activities favorable to the investment adviser and ignore those which are unfavorable."
  • If all of this is taken into account, any sort of testimonial posts on a website, blog, or social media is generally prohibited. Again, this puts an advisor at a disadvantage when they are compared to other industries. In a 2012 risk alert, it was stated that “nearly any social media website maintained by an investment adviser” would constitute an “advertisement,” and that the mere use of “social plug-ins” such as a “like” button, could constitute a testimonial prohibited by the Testimonial Rule.
  • The SEC found one advisor was deficient because he posted two videos on a YouTube channel that had client testimonials. In this video the client stated that they had been provided with income, security, and peace.
  • Statements can even be considered testimonials if they are implied, meaning even if there are no names attached. An example would be, "Our clients love us, you will too", or join our list of satisfied clients.

Social Media

  • Under the current interpretation of the law, "likes" on social media pages could be considered testimonials, which are against the rules.
  • The SEC enforced actions against an adviser because he "improperly retweeted prohibited client testimonials and selected posts by other Twitter users without disclosing the economic interest of the adviser. "

LinkedIn

  • SEC interpretations make it unclear whether an endorsement by another LinkedIn member is considered against the rules under the definition of testimonials. This has caused many advisors to remove themselves from LinkedIn altogether.

Case Studies Are Not Allowed

  •  Case studies, which are used by many other industries, are not problematic because they could potentially violate the advertising rules. Case studies normally show something a company did that was successful which violates the advertising rule.

Websites

  •  Website deficiencies cited by the SEC are very common. The rules are complex, and therefore hard to follow. One must also consider that information that was posted accurately in the past may not be accurate today.
  • Some of the most frequently noted deficiencies are listing what services are offered by each entity, not enough disclosure language, misleading statements, usage of testimonials, outdated information, overstating qualifications or experience, and using language that might be construed as a guarantee.
  • Websites are a chief source of advertising, but an advisor's website must not include words like unique, best in class, or high quality, as they are subjective words and can not be proven. One advisor was sent a deficiency letter because she stated she was a "pillar" in her community.

Research Strategy

In finding the challenges and conflict with a rule that is over forty years old, we did include some sources that were beyond that Wonder standard two-year time frame as they were relevant to the research.
Sources
Sources
From Part 01

SEC proposes allowing advisers to use testimonials, endorsements in ads

investmentnews.com
Publication Year: 2019

SEC Proposes Changes to Advertising and Solicitation Rules

wealthmanagement.com
Publication Year: 2019

SEC Pitches Huge Ad Rule Overhaul - Non Perele

nonperele.com
Publication Year: 2019
From Part 02

SEC Seeks to Bring Adviser Advertising Rules into the Digital Age | PLANADVISER

planadviser.com
Publication Year: 2019
Quotes
  • "The SEC advertising rule hasn’t been substantively amended since 1961—long before social media, long before the Internet, even before fax machines,” Barr says. “We’ve been urging the SEC to update the rule for nearly 20 years. Advancements in technology and communications have drastically changed the ways that every service provider in our economy engages with clients and prospective clients.”"
  • "Barr and others have argued that, because of the SEC’s outdated rule, investment advisers are generally prevented from using communications and marketing methods that long ago became standard business practice elsewhere in the economy."
  • "According to Barr, the SEC’s proposal also appears to distinguish between retail and institutional investors in several important ways and would no longer ban the use of testimonials and past specific recommendations."
  • "In a major shift, the proposal would permit testimonials and endorsements, subject to specified disclosures, including whether the person giving the testimonial or endorsement is a client and whether compensation has been provided by or on behalf of the adviser. Furthermore, the proposed rule would permit third-party ratings, subject to specified disclosures and certain criteria pertaining to the preparation of the rating."
i

Finally, the SEC Is Looking at Modernizing the Advertising Rule - Investment Adviser Association

investmentadviser.org
Publication Year: 2019
Quotes
  • "If your firm engages in marketing, including via a website, social media or email, you are painfully aware of the restrictions imposed by the SEC’s Advertising Rule for investment advisers (Rule 206(4)-1). Calling the rule outdated would be a massive understatement. It has been on the books substantially unchanged for nearly six decades!"
  • "There was a time when investors relied solely upon information mailed to them, reading newspapers, or watching television. For historical information, investors typically went to the library. Anyone remember microfiche? Technology has removed traditional barriers to obtaining information. The Internet, the use of social media, and other modern advancements in communications have led to the significant proliferation of the availability of information. Investors can now access and assimilate a vast trove of information into their decision-making process. In addition, mobile devices have changed the way investors read, absorb, and respond to marketing and accompanying disclosures. The SEC should carefully consider the role technology plays in how investors communicate and obtain information today and into the future."
  • "The specific prohibitions in the Advertising Rule that are considered per se fraud no longer make sense."
  • "The Advertising Rule stems from the SEC’s determination in 1961 that certain types of advertisements should be deemed misleading or fraudulent regardless of intent. However, in our view, the activities explicitly prohibited by the rule should not be considered per se fraud. In particular, we believe that the rule’s treatment of any advertisements that refer to either client testimonials or past specific recommendations as fraudulent no longer makes sense in today’s investing environment. "
  • "As noted above, investors are more informed and sophisticated than ever before. They seek detailed information about the performance of their accounts and their peers’ experience with an adviser. Consumers today are accustomed to conducting research on the Internet, evaluating and creating user reviews, and sharing views publicly. The ban on testimonials is particularly dated in this regard, in effect thwarting common uses of social media. For example, based on SEC staff interpretations, it is questionable whether members of the public can “like” an adviser’s online posts or endorse an adviser’s skill on LinkedIn without running afoul of the rule."
  • "The past specific recommendation ban highlights another unfortunate consequence of the Advertising Rule – it restricts the ability of an investment adviser to provide complete and accurate information to investors that may be useful in making decisions. For example, investors could benefit greatly from specific examples demonstrating how an adviser’s investment process or philosophy has been put to work in managing actual accounts. But providing concrete examples by referring to past specific investments (also referred to as “stock stories” or “case studies”) could be viewed as not being permitted under the existing rule. Put simply, these flat-out prohibitions run counter to investor expectations."
  • "The rulebook needs to be simplified. As a general matter, we believe that regulations should be easy to understand and implement. An unfortunate consequence of the Advertising Rule is that it has morphed into a regulatory scheme consisting of a complex maze of enforcement actions and a patchwork of SEC staff no-action letters that are difficult to decipher and apply to evolving circumstances. Advisers cannot simply read the rule and understand what is required but rather must delve through a thicket of staff pronouncements and enforcement proceedings. Such a regulatory scheme is confusing for even the most seasoned advisers to understand and difficult for the SEC to enforce. "
s

SEC Proposed Rule Changes

sec.gov
Publication Year: 2019
Quotes
  • "The proposed rule is intended to define “advertisement” so that it is flexible enough to remain relevant and effective in the face of advances in technology and evolving industry practices.40 This proposed definition reflects several differences from the current rule. One difference is the expansion of the types of communications addressed to reflect evolving methods of communication, rather than the methods that were most common when the current rule was adopted (e.g., newspapers, television, and radio).41 Second, the proposed definition applies explicitly to advertisements disseminated to investors in pooled investment vehicles, with"

SEC Advertising Rule overhaul is overdue

ssctech.com
Publication Year: 2018
Quotes
  • "Does your firm or any of its associates have a LinkedIn or Facebook page? Have you ever received a “like” or an endorsement from anyone in your network? If so, you could be running afoul of the SEC Advertising Rule, according to the Investment Adviser Association’s Assistant General Counsel, Sanjay Lamba. Sanjay and the IAA’s Laura Grossman led a discussion on the current regulatory climate at the SS&C Deliver conference in Las Vegas, and a review of the Advertising Rule was on the agenda."
  • "SEC Rule 206(4)-1, better known as the Advertising Rule, is about 60 years old. The SEC is currently considering amendments to the rule and soliciting comment. In the IAA’s view, an overhaul that brings the rule up to the era of social media is long overdue. As it stands, any written communication sent to more than one person is deemed an advertisement under the rule. "
  • "That includes websites and social media postings, but it can also extend to an institutional adviser’s pitchbook for prospects. In the absence of clear guidance as to what constitutes advertising or an endorsement, many firms request “no-action” letters from the SEC for clarification."

What Investment Advisers Need to Know About the SEC’s New Risk Alert

corecls.com
Quotes
  • "• Using testimonials (i.e., statements attesting to or endorsing the firm’s services) in marketing or advertising materials, including websites, social media, article reprints, and/or presentations are prohibited under Rule 206(4)-1."

Websites a Common Place for Advertising Deficiencies - RIA Compliance Consultants

ria-compliance-consultants.com
Publication Year: 2015
Quotes
  • "Website and other advertising deficiencies are commonly cited during routine U.S. Securities and Exchange Commission (“SEC”) and state securities regulatory examinations. The following are specific examples of common website deficiencies that investment advisers should avoid in order to comply with Rule 206(4)-1 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) and similar state securities rules:"
  • " Implying the firm is somehow endorsed by the SEC or a state regulatory body;  If the investment adviser has multiple entities, failure to clarify what services are offered by the particular entity;  Failure to include adequate website disclosure language;  Using misleading statements;  Using testimonials;  Displaying outdated information;  Overstating qualifications or experience; and  Using language that may be construed as a guarantee. "
a

Westlaw-Altman-Lewitz-Handschumacher

akingump.com
Quotes
  • "In adopting the rule, the SEC expressed its view that testimonial advertisements are “misleading” because “by their very nature they emphasize the comments and activities favorable to the investment adviser and ignore those which are unfavorable.”3 Of course, advisers should keep in mind that an advertisement, even if not testimonial in nature, can violate Section 206(4) and other subsections of Rule 206(4)-1 if it is otherwise false or misleading"
  • "Whether public commentary on social media is testimonial depends upon the facts and circumstances relating to the statement.4 While the term “testimonial” is not defined in Rule 206(4)-1, SEC staff have consistently interpreted the term to include a “statement of a client’s experience with, or endorsement of, an investment adviser.”5 Under this framework, commentaries posted directly on an adviser’s website, blog or social media site that tout the adviser’s services generally would be prohibited testimonials. "
  • "According to the SEC’s orders, one adviser and its IAR, as well as two other independent IARs, violated the Testimonial Rule by using a marketing consultant to solicit client reviews on various social media websites including Yelp, Google and Facebook. In addition, the SEC found that another adviser created and published two videos containing client testimonials on its public website and on YouTube. The reviews and videos included information on the advisers or representatives and the services provided to their clients."
  • "In December 2018 the SEC settled enforcement actions involving social media activity of two robo-advisers that provide automated, software-based portfolio management services.7 One of the SEC’s settled orders found that the adviser improperly retweeted prohibited client testimonials and selected posts by other Twitter users without disclosing the economic interest of the adviser. "
  • "It also paid bloggers for client referrals without the required disclosure and documentation, and it failed to maintain a compliance program reasonably designed to prevent violations of the securities laws. The second SEC settled order found that one of the advisers failed to comply with, among other requirements, the Books and Records Rule. In this instance, the adviser posted comparisons of its clients’ investment performance with those of two competitor advisers and failed to maintain sufficient documentation to substantiate certain posted data on its website and social media"

SEC Liability for Social Media ViolationsSEC Liability for Social Media Violations

corpgov.law.harvard.edu
Publication Year: 2018
Quotes
  • "The definition of an “advertisement” subject to the rule, for example, is extremely broad and has been interpreted to encompass certain statements by the RIA and its personnel on social media, and even statements by third parties on social media where the RIA has some involvement in the social media site or the production of its content. "
  • "Likewise, the term “testimonial” is not defined in the rule or elsewhere in the Advisers Act; the Staff has consistently interpreted that term to include a “statement of a client’s experience with, or endorsement of, an investment adviser.” [5] In a 2012 risk alert, the Staff stated its view that “nearly any social media website maintained by an investment adviser” would constitute an “advertisement,” and that the mere use of “social plug-ins” such as a “like” button, could constitute a testimonial prohibited by the Testimonial Rule. [6]"
  • "More specifically, one of the Settlements alleges that an RIA published two videos containing client testimonials on both the RIA’s public website and YouTube.com. The testimonials used in the videos included statements that the RIA’s services had provided the clients with income, security, and peace."
  • "Three of the other Settlements allege that an RIA and its IAR, as well as two IARs employed by other investment advisers not included as parties to the actions, hired a marketing consultant and his company, Create Your Fate, LLC (“Create Your Fate”), to solicit testimonials from clients, which were then published on various social media and other websites"
  • ". Videos, Podcasts, And Similar Media Are “Advertisements” Subject To The Testimonial Rule. One of the Settlements involved a fairly straightforward fact pattern. The SEC alleged that the settling RIA published two videos on its website and on YouTube. These videos were deemed “advertisements” that contained client testimonials discussing the RIA and the advice and services it renders, and thus violations of the Testimonial Rule."
  • "The Settlements also present a more complicated question: Will an RIA be held responsible for statements made by third parties on social media? With these Settlements, the answer appears to be that the SEC is taking a more active approach to enforcement of statements made by and about RIAs on social media, consistent with the principles in the 2014 Guidance."

Avoiding Testimonials Under The RIA Advertising Rule 206(4)-1

kitces.com
Publication Year: 2019
Quotes
  • "In many instances, advisers may have no idea that the content (or particular key words) they are using would be deemed “misleading” by regulators. And although securities regulators are unlikely to bring a full-scale enforcement action against an RIA because of these innocent mistakes, they can give examiners a bad impression of the firm’s compliance program and suggest to examiners that they should dig deeper in reviewing the firm (to ensure that the misleading advertising smoke isn’t a sign of a bigger compliance fire to address). "
  • "Misleading Advertising Content Isn’t Always Obvious When it comes to the RIA Advertising Rule 206(4)-1, false or misleading advertising content can range from obvious misstatements to seemingly innocuous errors. In contrast, suppose an adviser advertises that he has a Ph.D. but never discloses that the degree is in an unrelated field. An examiner might question whether the advertisement is misleading (a potential infraction that could lead to an enforcement action) or is merely disingenuous (concerning and still likely something an examiner would request to be fixed in a deficiency letter)."
  • "It’s also notable that “misleading” content can be content that was perfectly acceptable when first published, but (unwittingly) becomes misleading as it ages. Which means RIAs should be implementing policies and procedures to ensure that their websites are kept current as well. For example, some RIAs choose to include their assets under management on their website. Assets under management figures can become stale and misleading over time, even if the RIA specifies the date on which they were calculated (if that date is no longer timely). Thus, references to assets under management should be updated promptly if they go up or down significantly (and generally at least quarterly to ensure timely information is shared)."
  • "Alternatively, too many advisers describe their strategies, credentials, or background as “unique,” even though there is nothing all that unusual about their approach, academic achievements, or experience. And ironically, aside from the potential compliance problem with using this description, it is doubtful that the word “unique” will resonate with prospects anyway, especially if they are seeing just about every RIA describe itself in the same way, too."
  • "For example, in one deficiency letter, the examination team stated that the description “best-in-class” was misleading and criticized the RIA’s use of the claim “high quality.” The examination team’s explanation was that these kinds of claims are subjective, and suggest characteristics about the firm’s capabilities that might be unwarranted or unsubstantiated."
  • "Similarly, calling yourself a “pillar of the community” goes too far. There would be less compliance risk if an IAR simply advertises her long-standing ties to the community instead."
  • "The Advertising Rule 206(4)-1 prohibits RIAs from using advertisements containing testimonials. Which means avoiding not only clear-cut testimonials but “implied” testimonials as well. As even if a statement is not technically a testimonial, and no names are attached to the quote, it can still be deemed potentially misleading. Essentially, examiners are concerned that an RIA is putting words in clients’ mouths when it advertises, “Our clients love us. You will too.” In one instance, SEC examiners cited an RIA’s advertisement that urged prospects to join its “roster of satisfied clients.”"
  • "Similarly, some RIAs create hypothetical case studies that are the equivalent of implied testimonials and may still be problematic. After all, in virtually every case study, the advice given by the adviser is always spot on and enables clients to reach their goals. These case studies always have a successful outcome. Which means, even with disclosures, case studies might be viewed as implied testimonials, or at least as misleading because they give the erroneous impression that clients always reach their investment goals. "
  • "in a December 21, 2018 enforcement action against robo-adviser Wealthfront, the SEC’s sanctions were based in part on the firm’s improper retweeting of client testimonials. Similarly, on July 10, 2018, the SEC announced high-profile enforcement actions against two RIAs, three IARs, and a marketing consultant, who were accused of using social media and the Internet to violate the Testimonial Rule."
  • "Marketing Hype And Content That Cannot Be Proven With Objective Evidence Unlike advertisements for other goods and service, RIAs should refrain from using exaggerations and puffing. "
  • "Similarly, a phrase like “proven results” is nebulous. Does that phrase mean recent results, or does it refer to performance since the inception of the firm? Can the RIA substantiate the so-called “proven results” with its books and records?"
  • "For instance, many RIAs use advertisements that boast, “Our clients sleep well at night.” No matter how wonderful their services are, there is no way to prove with objective evidence that an RIA’s clients sleep well at night or that they have peace of mind. RIAs using this language should beware of what happens when an examiner asks them to substantiate their marketing statement"
  • "Quite frequently, the content of a firm’s website and its marketing materials are written by copywriters who know little about the Advertising Rule governing RIAs and may not be familiar with how problematic marketing hype can be for RIAs given our highly regulated industry. In addition, the fact that some copywriters may have “experience in the financial services industry” still does not mean that they have expertise relating to (compliant) RIA advertisements."

What You Must Know about New SEC Rules on Social Media

laserfiche.com
Publication Year: 2019
Quotes
  • "Building a presence on social media sites like Twitter, LinkedIn and Facebook can help financial advisors build a strong brand, attract new clients and enhance relationships with existing clients. But with stringent rules and regulations from FINRA and the SEC in place, many advisors have shied away from embracing social media to build their businesses."

What the SEC Really Says About Digital Marketing for Financial Professionals - JWW

jacobwhitish.com
Publication Year: 2019
Quotes
  • "But what does the SEC really say about online marketing for financial professionals? Surprisingly, a lot. There has been a lot of talk over the years about what a financial professional can and can’t do online, but most of it ends up at a place of inaction and confusion. Between all the rules and clarifications, it’s easy to get lost in the weeds and never end up trying something new."
  • "As it turns out though, digital marketing for financial professionals is a wide open sea of opportunity for the ambitious advisor or wealth manager who actually wants to grow their practice and is willing to try something new. There are advisors out there signing 2-5 new clients each and every month through digital marketing efforts alone, not to mention the referrals that come from those happy clients later on!"
k

Sec Risk Alerts

kirkland.com
Quotes
  • "Most Frequent Advertising Deficiencies • misleading performance results that did not follow previous SEC guidance regarding the deduction of fees, comparisons to benchmarks, and hypothetical and back-tested performance results; • materials that cherry-picked past profitable performance, or included some but not all recommendations in order to illustrate a particular investment strategy, but did not provide the more fulsome list of performance or meet the other requirements of the Advertising Rule; • lack of compliance policies and procedures reasonably designed to prevent deficient advertising practices, including appropriate centralized reviews and approvals of advertising materials prior to distribution; • use of misleading third party rankings or awards, such as those that lacked material facts, were outdated or were based on selection criteria that were not disclosed in the materials; • use of misleading professional designations, such as those that have lapsed; and • use of prohibited advisory client testimonials, including on websites or social"

IAs may face advertising rule change; meanwhile, mind the details

reuters.com
Publication Year: 2018
Quotes
  • "The Advertising Rule(here) -- Rule 206(4)-1(here) of the Investment Advisers Act of 1940 -- was adopted in 1962 when industry communications were primarily in print and no one had yet conceived of email or social media. The advisory landscape was different too, with the commission focused mainly on retail investors, and not the most sophisticated products targeted to institutional and accredited investors."
  • "The rule’s definition of what constitutes an advertisement says, in part, that an advertisement is “any notice, circular, letter or other written communication addressed to more than one person.” This leaves some confusion in today’s marketplace as email notes targeted to one or more customers can be customized, so the question is whether such communications are advertisements under the rule."
  • "The main concerns about the Advertising Rule appear to fall around four of its five main prohibitions involving a “fraudulent, deceptive or manipulative act, practice or course of business.” —Employs testimonials; —Makes use of past specific recommendations that were profitable to any person; —States that a graph, chart, formula or other device can, by itself, be used to make investment decision, without also prominently disclosing the limitations of doing so; and —Offers a report, analysis or other service “free or without charge,” when in fact there may be some condition or obligation attached to it. "
  • "“Consumers today are accustomed to conducting research on the internet, creating and evaluating user reviews, and sharing views publicly,” the IAA said. “The ban on testimonials is particularly dated in this regard, in effect, thwarting common uses of social media. For example, based on staff interpretations, it is questionable whether members of the public can ‘like’ an adviser’s online posts or endorse a skill on LinkedIn without running afoul of the Rule. This stance materially impedes investment advisers’ marketing activities and does not reflect investor expectations.” The testimonial ban makes it difficult for new advisers to promote their services when competing against existing firms, especially in light of the fact that customer sentiments regarding their products and services likely abound on social media platforms already anyway, as with Facebook "likes," and consumer review platforms(here)."
  • "For now, a Facebook “like” on an advisory firm’s Facebook page — even an unsolicited one — that by its very nature commends the firm’s advisory services could be considered a testimonial and the RIA should prohibit and delete such posts."

Compliant Advertising: Breaking it Down - Part 1: The Foundation - SEC Compliance Solutions

seccsllc.com
Publication Year: 2019
Quotes
  • "Although the Advisers Act specifically says “written communication,” keep in mind these rules are from 1940. Times have changed. Back then, firms didn’t have access to emails, websites, social media, or podcasts, and they probably didn’t even have ease of access to radio or television commercials. So, even though the Advisers Act states, “written communication,” the SEC does take into consideration all printed, electronic, and broadcast advertisements, since we’re in the 21st century. You should too"
  • "“…more than one person…” This clause is also unclear. Let us clarify. It doesn’t just mean more than one person at once, like a group presentation. That is only one example. It could mean sending a presentation out through a mass mailing. It could also be referencing a standard marketing piece that you give to a potential client during a one-on-one meeting. Even though you only gave it to one person at that time, maybe you gave that same marketing piece to another person last week or you will next week. In which case, you’ve now given that presentation to “more than one person.” "
  • "Mistakenly, advisers often think that a “one-on-one” is not advertising because it’s not provided to more than “one” person. Don’t fall into that trap. Determining whether or not something is an advertisement is not only about whether the material is presented “one-on-one” or to “more than one person.” You must consider whether or not the material is standardized or customized. If using standardized materials, the SEC does view it as advertising."
  • "FINDING THE REQUIREMENTS Remember when I said that the Advertising rules and guidelines are not all in one spot? I wasn’t joking. The requirements for Advertising can be found in many different sources. Now you have a master list. Don’t get overwhelmed. "
  • "One common area that falls under this category is the use of “superlative statements.” Superlative statements include words such as “superior,” “exceptional,” “best,” “proven,” “unmatched,” “enviable,” “industry leading,” and other hyped or positive words used to describe performance or other firm attributes. Advisers should avoid them, as they may be false or misleading due to their nature or lack of further definition. Such words can mean different things to different people. "

Publications |K&L Gates Mobile Site

m.klgates.com
Publication Year: 2018
Quotes
  • "RIAs face certain challenges applying Rule 206(4)-1, which was originally adopted in 1961 and has not been substantively amended, to modern forms of communication. [4] The definition of an “advertisement” subject to the rule, for example, is extremely broad and has been interpreted to encompass certain statements by the RIA and its personnel on social media, and even statements by third parties on social media where the RIA has some involvement in the social media site or the production of its content. Likewise, the term “testimonial” is not defined in the rule or elsewhere in the Advisers Act; the Staff has consistently interpreted that term to include a “statement of a client’s experience with, or endorsement of, an investment adviser.” "
  • "The Settlements also present a more complicated question: Will an RIA be held responsible for statements made by third parties on social media? With these Settlements, the answer appears to be that the SEC is taking a more active approach to enforcement of statements made by and about RIAs on social media, consistent with the principles in the 2014 Guidance."

SEC Liability for Social Media ViolationsSEC Liability for Social Media Violations

corpgov.law.harvard.edu
Publication Year: 2018
Quotes
  • "A. Videos, Podcasts, And Similar Media Are “Advertisements” Subject To The Testimonial Rule. One of the Settlements involved a fairly straightforward fact pattern. The SEC alleged that the settling RIA published two videos on its website and on YouTube. These videos were deemed “advertisements” that contained client testimonials discussing the RIA and the advice and services it renders, and thus violations of the Testimonial Rule."
  • "For example, recent amendments to Form ADV now require that RIAs disclose additional information regarding their use of social media. [10] Specifically, RIAs must now disclose the website addresses of each account maintained by the RIA on publicly available social media platforms, such as Twitter, Facebook, and LinkedIn. Prior to these amendments, Form ADV only requested disclosure of the RIA’s own website, but not its social media pages. In the adopting release for these amendments, the Staff noted that, given the rapidly evolving social media environment, Staff access to additional information regarding RIA use of social media is of particular importance."
i

Investment Council

investmentcouncil.org
Quotes
  • "3. Advertising Rule (IAA Rule 206(4)-1): Rule 206(4)-1, which has not been amended since its adoption in 1961, was designed to address advertising practices generally used by an investment adviser with respect to retail clients. Our members have found that the Rule places limitations on the ability of private equity fund sponsors to present case studies, other relevant “track record” information or references from investors, even though advisers are still subject to liability for false or misleading statements to investors or prospective investors under IAA Rule 206(4)-8 and other provisions of the federal securities laws. "

SPOTLIGHT ON Regulation of Advisor Advertising and Marketing

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