As mutual fund and ETF managers target registered investment advisors for growth opportunities, they will benefit by understanding RIAs' advertising limitations, especially in the area of social media. Many RIAs experience difficulty in growing their businesses because of strict regulatory restrictions on advertising and marketing, including websites and social media, according to many RIAs and others in the industry.

RIAs' hands are tied in the area of advertising. Differentiating their firms from other RIAs is challenging, because of these advertising restrictions. Social media creates additional obstacles, because the advertisement will usually require numerous disclosures.

RIAs may not use marketing hype in their advertisements, because it is inherently misleading. They are also not permitted to refer to past specific recommendations in advertisements, such as a particular ETF or mutual fund, without offering a list of all recommendations made for the past year along with robust disclosures. An RIA's performance returns must be presented net of the firm's advisory fees and must include voluminous disclosures, which is no easy task in a tweet of 140 characters.

The SEC's Division of Investment Management recently published guidance to explain how the advertising rule applies to social media in situations where it is used by RIAs to market their services.

Many social media compliance questions arise from the rule's prohibition against the use of testimonials in advertising.

The SEC has interpreted "testimonial" as a statement of a client's experience with, or endorsement of, an investment advisor. The SEC's advertising rule forbids the use of testimonials, because prospective clients may mistakenly infer that all of the RIA's clients had the same positive experience. State-registered investment advisors typically manage far less assets under management, but are usually subject to a very similar advertising rule.

The SEC stated in its guidance that an advertisement containing non-investment related commentary about an investment advisor representative, such as the individual's religious affiliation or community service, will no longer be viewed as a testimonial. Nevertheless, it will be a prohibited testimonial if an RIA or IAR invited clients to post public commentary directly on the advisor's website, blog or social media site.


Based on the SEC's guidance, RIAs may publish public commentary about their services posted on independent social media sites, as long as all reviews are included in the advisory firm's advertisement.

An RIA must not have any influence over the third-party sites and must publish all comments about the firm without editing them. In addition, RIAs are permitted to publish testimonials from independent third-party sites that contain a mathematical average of the commentary. They are not, however, allowed to provide a subjective analysis of the comments on those sites.

An RIA or IAR may not submit comments to third-party social media sites under their own name, a third party's name, or an alias.

They may not draft evaluations for others to post or compensate individuals to write reviews. Compensation includes offering discounts or free services. In addition, an RIA may not highlight or give prominence to certain comments, typically those that praise the advisor. The reviews must be presented in a content-neutral manner, such as in chronological order.

Examiners are likely to become suspicious if an RIA or IAR has dozens of reviews on third-party sites such as Yelp or Angie's List. It would be very unusual for a large percentage of a firm's client base to decide without enticement to review an advisor, especially if these evaluations occur at approximately the same time.

The SEC said that an RIA may publish an advertisement encouraging prospective clients to read the reviews on a particular social media site. An RIA may not, however, glean selected reviews from a third-party site for use in advertisements. In addition, the SEC strongly cautioned RIAs and supervised persons about linking to community or fan sites, since they are not necessarily independent.

Don't take it personally if an advisor gives you the cold shoulder on social media

While the SEC has eased its restrictions on testimonials, compliance firms often encourage RIAs and IARs to delete testimonials posted on their business-related Facebook pages, LinkedIn accounts, and other social media.

They are also advised to hide endorsements and recommendations on LinkedIn. These testimonials are different from commentary on independent social media sites, because the advisor has the ability to delete negative posts.

Asset managers that attempt to bond with advisors using social media should not take it personally if a LinkedIn endorsement is hidden from view or kind words about the RIA are deleted from the firm's Facebook page. RIAs may be worried about causing themselves a problem with securities regulators.

Les Abromovitz is an attorney and senior consultant with National Compliance Services.


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