"SEC Issues New Guidance for Investment Advisers Regarding Use of Social Media Testimonials"

by Skadden, Arps, Slate, Meagher & Flom LLP

On March 31, 2014, the Division of Investment Management (the “Division”) of the Securities and Exchange Commission (the “SEC”) issued long-awaited guidance regarding investment advisers’ use of public commentaries on social media and their own websites.1 Recognizing the increased use of social media and the Internet to research and diligence service providers, the Division seeks to help advisers apply Section 206(4) of the Investment Advisers Act of 1940 (as amended, the “Advisers Act”) and Rule 206(4)-1(a)(1) thereunder (the “testimonial rule”) to their use of social media testimonials from independent third parties.


Section 206(4) of the Advisers Act prohibits an investment adviser from “engag[ing] in any act, practice, or course of business which is fraudulent, deceptive, or manipulative,” and directs the SEC to prescribe rules “reasonably designed to prevent” the same.2 In particular, the testimonial rule states that:

It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of Section 206(4) of the [Advisers Act] for any investment adviser registered or required to be registered under Section 203 of the [Advisers Act], directly or indirectly, to publish, circulate, or distribute any advertisement [w]hich 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.3

Although the rule does not define “testimonial,” the Update notes that the SEC staff has consistently interpreted the term “to include a ‘statement of a client’s experience with, or endorsement of, an investment adviser.’”4 For example, an adviser’s publication of commentary that is a statement of a client’s experience with or endorsement of the adviser on the adviser’s website, blog or social media site would violate the testimonial rule and historically has been prohibited.5 On the other hand, an adviser’s publication of an article by an independent, unbiased third party regarding the adviser’s investment performance is not a testimonial if it does not include a statement of a client’s experience with or endorsement of the adviser.6

New Guidance

In a Q&A format, the Update lays out the Division’s new position on when an investment adviser or an investment advisory representative (an “IAR”) may publish advertisements that feature public commentary about them without violating the testimonial rule. In general, whether public commentary on a social media site is a testimonial depends upon all of the facts and circumstances relating to the statement. However, publication7 of third-party commentary from an “Independent Social Media Site”8 would not raise the dangers the testimonial rule was designed to prevent if each of the following three conditions is satisfied:9

  Condition Notes
1. Independence The Independent Social Media Site provides content that is independent of the adviser or IAR.
This condition is not satisfied if the adviser or IAR directly or indirectly authors or submits commentary that appears on the Independent Social Media Site.10
2. No Material Connection There is no material connection between the Independent Social Media Site and the adviser or IAR that would call into question the independence of the Independent Social Media Site or commentary. This condition is not satisfied if the adviser or IAR directly or indirectly authors or submits commentary that appears on the Independent Social Media Site.11

However, an adviser or IAR may advertise with the Independent Social Media Site, provided it is readily apparent to a reader that (i) the advertisement is separate from the public commentary featured on the Independent Social Media Site and (ii) the receipt or nonreceipt of advertising revenue did not in any way influence which public commentary is included or excluded from such site.12
3. Full Disclosure of All Comments The adviser or IAR must publish all the unedited comments appearing on the Independent Social Media Site regarding the adviser or IAR.
The adviser or IAR may not delete or hide negative comments.

The publication must be in a content-neutral manner (e.g., chronological or alphabetical order), presenting positive and negative commentary with equal prominence.13

To facilitate review of the commentaries, adviser and IAR sites may provide a “sorting mechanism,” as long as the adviser or IAR site does not itself sort them.14 Adviser and IAR sites also may include a mathematical average of the commentaries, as long as (i) commenters themselves rate the advisers or IARs “based on a ratings system that is not designed to elicit any pre-determined results that could benefit any investment adviser or IAR” and (ii) the Independent Social Media Site, the adviser and the IAR do not include any subjective analysis or other summary of the public commentary.15 The Division cautions that subjective analyses may be prohibited more broadly (i.e., any subjective analysis or other summary of the public commentaries may implicate the testimonial rule).16

On nonsocial media (e.g., newspaper, television) advertisements, an adviser or IAR may reference the name and/or logo of Independent Social Media Sites, but may not publish any public commentaries from the site.17

Among other new guidance, the Update includes the following:

  • A list of “friends” or “contacts” on an adviser’s or an IAR’s social media site that is viewable by the general public does not by itself implicate the testimonial rule.18
  • A third party’s creation and operation of community or fan pages generally would not implicate the testimonial rule, although the Division staff strongly cautions advisers when publishing content from such sites or including hyperlinks or otherwise directing users to them, especially if the sites do not meet the material connection and independence conditions noted above.19
  • The Division staff also abandoned its earlier position that an advertisement containing noninvestment related commentary about an IAR, such as an IAR’s religious affiliation or community service, violates the testimonial rule.20


Although the new guidance permits use of certain social media testimonials that meet the above conditions, advisers are cautioned to carefully review such commentaries to ensure their publication does not violate the other advertising rules (e.g., the Advisers Act rule 206(4)-1(a)(5) (the prohibition on false or misleading statements))21 or state law requirements regarding publication of third-party content. Advisers also should consider updating their compliance policies and procedures to include their review process and standards for publishing third-party content.

1 Division of Investment Management, Securities and Exchange Commission, No. 2014-4, IM Guidance Update: Guidance on the Testimionial Rule and Social Media (2014) (Update), available at http://www.sec.gov/investment/im-guidance-2014-04.pdf.

2 Advisers Act § 206(4), 15 U.S.C. § 80b-6(4).

3 Advisers Act Rule 206(4)-1(a)(1), 17 C.F.R. § 275.206(4)-1(a) (2014).

4 Update, supra note 1, at 2 (citing Cambiar Investors, Inc., SEC No-Action Letter, 1997 WL 528245 (Aug. 28, 1997)).

5 Id. at 3, Item A1.

6 See id. at 2 (citing New York Investors Group, Inc., SEC No-Action Letter, 1982 WL 29455 (Sept. 7, 1982)).

7 The Division staff broadly defines “publication” as “any form of real-time broadcast through social media or the Internet whether by hyperlinking, posting, livestreaming, tweeting, or forwarding or any similar public dissemination and, does not relate to advertisements on non-Internet or non-social media sites, such as paper, television or radio.” Id. at 1, n.1.

8 An “Independent Social Media Site” refers to a “third-party social media site[ ] that predominantly host[s] user opinions, beliefs, findings or experiences about service providers,” including advisers or IARs. See id. at 1, n.2 (providing Angie’s List as an example). The Division staff specifically notes that an adviser’s or an IAR’s own social media account is not an “Independent Social Media Site.” Id.

9 Id. at 3-4, Item A2.

10 Id. at 4, Items A2-A3.

11 Id.

12 Id. at 6, Item A6.

13 Id. at 5, Item A4.

14 Id.

15 Id. at 5, Item A5.

16 Id.

17 Id. at 6, Item A7.

18 Id. at 7, Item A8.

19 Id. at 7, Item A9.

20 Id.at 3.

21 See Advisers Act Rule 206(4)-1(a)(5), 17 C.F.R. § 275.206(4)-1(a)(5) (2014).

Download PDF

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.

© Skadden, Arps, Slate, Meagher & Flom LLP | Attorney Advertising

Written by:

Skadden, Arps, Slate, Meagher & Flom LLP

Skadden, Arps, Slate, Meagher & Flom 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:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. 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. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the 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 shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this 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 the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.