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Yelp for Advisers—SEC Determines That Some Online Client Reviews Are Not Prohibited Client Testimonials

Posted in SEC Enforcement

The SEC’s Division of Investment Management recently released a guidance update on the “testimonial rule” and the use of social media by investment advisers. Found in rule 206(4)-1(a)(1) under the Advisers Act, the testimonial rule prohibits investment advisers that are registered or required to be registered with the SEC from publishing any advertisement that refers to “any testimonial of any kind concerning the investment adviser” or concerning any service rendered by the investment adviser. As the guidance update notes, “whether public commentary on a social media site is a testimonial depends upon all of the facts and circumstances relating to the statement.”

The guidance update introduces the concept of an “independent social media site,” which is a third-party social media site that predominately hosts user opinions, beliefs, findings, or experiences about service providers. An investment adviser’s own social media profile or account that is used for business purposes is not an independent social media site.

According to the guidance update, an investment adviser is not permitted to invite clients to post public commentary on the adviser’s own website, but the adviser may publish the same public commentary on its own site if the commentary comes from an independent social media site. In doing so, the investment adviser may not edit, revise, sort, or otherwise change the commentary in a manner that emphasizes favorable commentary or de-emphasizes unfavorable commentary.

Click here to read our client alert, which contains more analysis on the new social media guidance.