Be Careful What you Post - SEC Continues To Focus on the Use of Social Media by Investment Advisers

by K&L Gates LLP

K&L Gates LLP

On July 10, 2018, the Securities and Exchange Commission (the “SEC”) reaffirmed the application of the securities laws to social media use. Specifically, the SEC published five settlement orders (the “Settlements”) [1] arising from alleged violations of the Investment Advisers Act of 1940, as amended (“Advisers Act”), and Rule 206(4)-1(a)(1) thereunder (the “Testimonial Rule”). Notably, the Settlements involved the publication of client testimonials on social media and other websites by SEC-registered investment advisers (“RIAs”), the investment adviser representatives of RIAs (“IARs”), and/or a marketing consultant hired by the RIA or the IARs. Taken together, the Settlements demonstrate that the SEC and its staff (“Staff”) are actively applying the Staff’s 2014 Guidance on the Testimonial Rule (described below) in the enforcement context. The Settlements, which arise from examination referrals conducted by the SEC’s Chicago Regional Office, are further evidence of an increased focus by the Staff on social media use by RIAs generally. [2]

Investment Adviser Advertising and Social Media: The Big Picture

Section 206(4) of the Advisers Act makes it unlawful for an RIA to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative, and Rule 206(4)-1 under the Advisers Act identifies and effectively prohibits certain statements that, when published in an advertisement by an RIA, constitute a violation of the Act. One of these prohibitions, 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.” [3]

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.” [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]

On March 28, 2014, the Staff published a guidance update (“2014 Guidance”) addressing, among other issues, the solicitation of client testimonials by RIAs for inclusion on social media websites. [7] The 2014 Guidance removed a great deal of then-existing uncertainty regarding RIA social media use by acknowledging that not all public commentary posted on a social media website constitutes a prohibited testimonial. The 2014 Guidance stated that, in the Staff’s view, public commentary made directly by a client about his or her own experience with, or endorsement of, an RIA could be a testimonial if the RIA played a role, directly or indirectly, in obtaining or requesting the commentary. [8] Specifically, the Staff noted that invitations to clients to post commentary on an RIA’s internet site, blog or social media site would render any response an impermissible testimonial.

The Settlements show that the SEC is committed to enforcing the principles in the 2014 Guidance.

The Recent Settlements

According to the Settlements, two RIAs, three IARs, and a marketing consultant published testimonial advertisements on the internet in violation of the Testimonial Rule. The Settlements found that as a result of the conduct described below, the RIAs each violated, and that the IARs and the marketing consultant each caused violations of, Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(1) thereunder.

More specifically, one of the Settlements alleges that an RIA published two videos containing client testimonials on both the RIA’s public website and 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. The fifth Settlement was directly against the marketing consultant, who was not an RIA or an IAR. The testimonials included statements indicating the RIA and IARs were knowledgeable and trustworthy, helped clients generate investment returns, enabled the client to access unique investment opportunities, and protected the client’s investments from risk. Create Your Fate published a number of these testimonials on the RIA’s and IARs’ social media websites. Create Your Fate used the solicited testimonials in videos captioned “Five Star Review,” which were posted to YouTube and the RIA’s and IARs’ public websites. The videos included the contact information and a link to the settling RIA’s and IARs’ websites. The Settlements also allege that one of the RIAs orally solicited clients and other individuals to publish testimonials directly on independent social media websites like Yelp.

Practical Implications

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.

RIAs should be mindful when creating content that website videos and other media such as podcasts are considered “advertisements” and, to the extent they contain client testimonials, may violate the Testimonial Rule.

b. The SEC is enforcing the 2014 Guidance on social media content.

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.

The 2014 Guidance squarely addresses the fact pattern in these Settlements: “if an investment adviser or IAR invited clients to post . . . public commentary directly on the investment adviser’s own internet site, blog or social media website that served as an advertisement for the investment adviser or IAR’s advisory services, such testimonials would not be permissible.”

It should be noted that not all testimonials posted to social media regarding an RIA or its personnel are deemed impermissible under the 2014 Guidance. The 2014 Guidance establishes certain standards for determining whether commentary published on a social media site is sufficiently independent of influence by an RIA or its IARs such that the commentary should not be deemed to implicate the Testimonial Rule. Here, the commentary was not considered sufficiently independent because the RIA and IARs directly and indirectly solicited the commentary. RIAs should note that invitation or solicitation is only one way that third party social media commentary may be deemed an impermissible testimonial. RIAs should review the 2014 Guidance to ensure that they do not take other actions that may render otherwise independent social media commentary suspect in the eyes of the Staff, such as removing unfavorable comments or submitting false testimonials. [9]

Other Indications the Regulation of RIA’s use of Social Media is a Staff Priority.

These Settlements are only one indication of an increased focus by the Staff on RIAs’ social media use, which is likely a reaction to the increased use of social media by both investors and RIAs. Other actions over the past two years also show a growing level of attention to RIA social media websites by the SEC and its Staff.

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.

In addition, the Office of Compliance Inspections and Examinations of the SEC (“OCIE”) undertook a series of nearly 70 sweep examinations focused on certain RIA advertising issues, including the use of testimonials, beginning in 2016. [11] The results from this initiative confirmed that RIAs frequently include client statements describing RIA services and/or endorsements in advertisements, including firm websites and social media pages. In light of the SEC’s focus and the expansion of the use of social media in the investment management industry, RIAs should prepare for more frequent and detailed reviews of RIAs’ websites and social media pages as part of the OCIE examination process.

For prior alerts on this topic see:

SEC Staff Addresses Third-Party Endorsements of Investment Advisers on Social Media Websites,

Amendments to Form ADV: Practical Considerations,

Calm Before the Storm: Investment Advisers Face Changes to the Advertising Rule, GIPS, and Performance Portability Standards,

[1] In the Matter of William M. Greenfield, Investment Advisers Act Rel. No. 4961 (Jul. 10, 2018); In the Matter of Brian S. Eyster, Investment Advisers Act Rel. No. 4962 (Jul. 10, 2018); In the Matter of HBA Advisors, LLC and Jaime Enrique Biel, Investment Advisers Act Rel. No. 4963 (Jul. 10, 2018); In the Matter of Leonard S. Schwartz, Investment Advisers Act Release No. 4964 (Jul. 10, 2018); In the Matter of Romano Brothers & Company, Investment Advisers Act Rel. No. 4965 (Jul. 10, 2018) (collectively, the “Settlement Actions”).

[2] See Form ADV and Investment Advisers Act Rules, Release No. IA-4509, SEC (Aug. 25, 2016) (“Form ADV Amendments”); see also; The Most Frequent Advertising Rule Compliance Issues Identified in OCIE Examinations of Investment Advisers, National Examination Risk Alert, Office of Compliance Inspections and Examinations, SEC, Vol. VI, Issue 6 (Sept. 4, 2017) (the “2017 Risk Alert”).

[3] See the Testimonial Rule, “[i]t 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.”

[4] SEC staff have recently expressed an intent to revise Rule 206(4)-1, and the rule is on the SEC’s short-term regulatory agenda. See

[5] See Cambiar Investors, Inc. Staff No-Action Letter (pub. avail. Aug. 28, 1997).

[6] Investment Adviser Use of Social Media, National Examination Risk Alert, Office of Compliance Inspections and Examinations, SEC, Vol. 1, Issue 1 (Jan. 4, 2012).

[7] Guidance on the Testimonial Rule and Social Media, Guidance Update, Division of Investment Management, SEC, No. 2014-04 (March 2014); see also

[8] See DALBAR, Inc., Staff No-Action Letter (pub. avail. March 24, 1998).

[9] See Guidance on the Testimonial Rule and Social Media, supra note 7; see also

[10] See Form ADV Item I.1.

[11] See 2017 Risk Alert, supra note 2.

DISCLAIMER: 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.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.