By now you’ve probably heard that recent SEC guidance on testimonials has clarified the use of third-party social media review sites. (You can read the complete guidance from the SEC here.)

However, it's not clear how well advisors either know these sites or understand the potential influence either could have on a business.

Social media is having a growing influence on consumer behavior and purchase decisions, and review sites are aiding their selections.

YELP

You're more likely to have encountered Yelp -- a San Francisco-based, multinational corporation that operates an “online urban guide” and review site -- when looking for dinner plans. In the past decade, the site has accumulated over 53 million local reviews and, as of last year, averages approximately 12 million monthly unique visitors.

The site’s main value rests in its crowd-sourced user reviews, both good and bad, of products and services offered by vendors and professionals. For example, you can search for “pizza in New York City” to find the most highly rated pizza establishments. Reviews are based on a 5-star system, and users can add free-form commentary on the products, the service, or overall impressions.

Business owners can also set up a free account to post photos and message their customers.
Reviews are very subjective, given the wide spectrum of taste and opinions, but advisors need to understand that Yelp reviews could have an impact on their business; every advisor should check the site periodically to monitor for mentions of their brand.

ANGIE’S LIST

Originally created in 1995 as a call-in service and publication for reviews, Angie’s List was founded with a focus on contractors and other homeowner services in Columbus, Ohio. The service has since expanded to cover most of the U.S. and is now used by over 2 million households to find high-quality service companies and health care professionals in over 700 categories.

The site grades companies in report card style, with a scale ranging from A to F. User ratings are based on a variety of criteria and each company has its own page composed of a description and customer reviews.

As on Yelp, members are encouraged to share their experience, but data is certified and all reviews are checked in order to guard against providers and companies that try to report on themselves or their competitors.

Users do not need to subscribe to Angie’s List in order to submit a review, but the site does not accept anonymous reviews. Unlike Yelp, all reviewers must confirm their name, address, phone number and email address when submitting a review.

It’s worth noting that, in spite of this added level of transparency and authenticity, the site has faced some controversy over the influence that advertisers may have on reviews.

WHAT ADVISORS MUST KNOW

Though I am hard-pressed to believe that any individual would make their decision to work with an advisor based solely on a Yelp or Angie’s List review, the sites will serve as important resources to both current and prospective clients.

A string of negative reviews could certainly give clients pause before working with someone new, while a positive review could influence the decision to move forward with an appointment.

The addition of Yelp and Angie’s List reviews should be positive overall since those advisors that are providing poor service will be exposed, while those that are doing an outstanding job will be recognized. Investors, I believe, will appreciate that their peers are taking the time to write reviews; and the transparency is refreshing.

I still believe that personal referrals are the best resource for new client relationships. But given the large number of choices open to investors, sites like Yelp and Angie’s List are likely to have an influence going forward -- especially if users are already turning to these sites for other decisions.

Although advisors have no control over the reviews that are posted on Yelp, Angie’s List, and other third-party review sites, I think the best defense is a good offense: Provide quality service to your clients and be professional in your approach to business.

The new guidance from the SEC validates the influence that social media is having on the financial services profession. What remains to be seen is how quickly advisors adopt and embrace the use of these sites to build and grow their business.

Victor Gaxiola is customer advocacy manager for Hearsay Social.