Division of Investment Management: References by Advisers to Public Commentary on Social Media Sites Don’t Invoke “Testimonial Rule” if They Satisfy “Independence” and “No Material Connection” Tests

Acknowledging the growing demand by consumers for information through social media, the Division of Investment Management set some ground rules on how investment advisers can use social media and publish advertisements that feature public commentary about them that appears on social media sites.

Generally, advisers may refer to commentary published in social media without violating the rule prohibiting publication of client “testimonials” if the content is independently produced and the adviser has no “material connection” with the independent social media site. While not a bright line in the sand, the distinction goes a long way to clear up this murky area.

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Client Alert
adviser’s performance, unless it includes a statement of a client’s experience with the adviser, or an endorsement
of the adviser, would not violate the testimonial rule. The staff has used this concept as the basis for its current
Third-party commentary. The staff attempted to draw a line between endorsements and legitimate third-party
• Advisers may not publish public commentary on their website that is an explicit or implicit statement of a
client’s experience with the adviser.
o Commentary posted directly on the adviser’s website, blog, or social media site that touts the
adviser’s services are prohibited testimonials.
• Advisers won’t necessarily violate the testimonial rule if they publish commentary originating from an
independent social media site on their own websites or social media sites, provided:
o The independent social media site provides content that is independent of the investment adviser
or its representative;
o There is no material connection between the independent social media site and the investment
adviser or its representative that would “call into question the independence” of the independent
social media site or its commentary; and
o The investment adviser or representative publishes all of the unedited comments appearing on
the independent social media site regarding the adviser or representative.
• Content is not “independent” if the adviser or its representative had a hand in authoring the commentary,
directly or indirectly. For example, paying a client (or offering a discount to a client) for saying nice things
would implicate the testimonial rule.
• Advisers may not use testimonials from independent social media sites that directly or indirectly
emphasize commentary favorable to the adviser, or downplay unfavorable commentary.
• Advisers may publish commentary from an independent social media site that includes a mathematical
average of the public commentary—for example, based on a ratings system that is not pre-ordained to
benefit the adviser.
Investment adviser advertisements on independent social media sites.
• Investment advisers may advertise on an independent social media site, provided that it is readily
apparent that the advertisement is separate from the public commentary, and that the receipt of
advertising did not influence the selection of public commentary for publication.

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Client Alert
Reference to independent social media site commentary in non-social media advertisements.
• In print, TV, and radio ads, advisers may refer to the fact that third-party social media sites feature public
commentary about the adviser, but they may not publish any actual testimonials without implicating the
testimonial rule.
Client lists on social media sites.
• Simply identifying contacts or friends on a social media site by itself does not implicate the testimonial
rule, as long as they are not grouped in a way that suggests that they endorse the investment adviser.
Fan and community pages.
• A third party’s creation and operation of unconnected community or fan pages generally would not
implicate the testimonial rule. However, the staff strongly cautions advisers and their employees that
publishing content from those sites or directing user traffic to those sites if they do not meet the no
material connection and independence conditions described above may implicate the testimonial rule.
The Division of Investment Management’s approach to regulating the use of social media by advisers differs
markedly from the approach adopted by FINRA for broker-dealers. While both regulators focus on the substance
of the communication, rather than the format, the differences arise primarily from the nature of the regulated entity
and the starting point of regulation.
For example, the Division of Investment Management focuses almost exclusively on adequacy of compliance
programs, and whether a particular use of social media involves a prohibited “testimonial,” a concept largely
absent from regulation of broker-dealers. On the other hand, FINRA focuses on suitability of a recommendation
and whether a particular communication requires advance compliance approval. Both approaches require caution
when a regulated entity publishes or relies on third-party content.
The Division of Investment Management’s guidance moves the ball forward, and will provide a starting point for
chief compliance officers who are struggling to get their arms around advisers’ use of social media. It may also
provide an opportunity for advisers to revisit their procedures for monitoring advertising. While the guidance
provides some relief for advisers who now have a better idea of the limitations to which they are subject, it also
provides some compliance challenges, especially when advisers and their representatives make use of fast-
paced social media to advertise.

Jay G. Baris
(212) 468-8053
Kelley A. Howes
(303) 592-2237
Isabelle Sajous
(212) 336-4478

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Because of the generality of this update, the information provided herein may not be applicable in all situations
and should not be acted upon without specific legal advice based on particular situations. Prior results do not
guarantee a similar outcome.

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