The US Securities and Exchange Commission (SEC) has issued guidance to assist investment managers in applying Section 206(4) of the Investment Advisers Act of 1940 to their use of social media.
According to law firm Sadis & Goldberg, the guidance seeks to assist investment managers in developing compliance policies and procedures reasonably designed to address marketing through social media.
Section 206(4) of the Advisers Act generally prohibits any investment manager from directly or indirectly publishing, circulating, or distributing any advertisement which refers, directly or indirectly, to any testimonial of any kind concerning the investment manager or concerning any advice, analysis, report or other service rendered by such investment.
The term "testimonials" includes a "statement of a client's experience with, or endorsement of, an investment manager".
Depending on the facts and circumstances, public commentary made directly by a client about his or her own experience with, or endorsement of, an investment manager or a statement made by a third party about a client's experience with, or endorsement of, an investment manager may be a testimonial.
Whether public commentary on a social media site is a testimonial depends upon all of the facts and circumstances relating to the statement. The SEC has stated that an investment manager's publication of an article by an unbiased third party regarding its investment performance is not a testimonial, unless it includes a statement of a client's experience with or endorsement of the investment manager. The SEC also has stated that an investment manager's advertisement that includes a partial client list that does no more than identify certain clients of the investment manager cannot be viewed either as a statement of a client's experience with, or endorsement of, the investment manager and therefore is not a testimonial.
Specifically with regard to social media, the SEC believes that if an investment manager invited clients to post public commentary directly on the investment manager's own internet site, blog or social media site that served as an advertisement for the investment manager's advisory services, such testimonials would not be permissible. However, the SEC believes that testimonials on independent social media sites may be permissible if:
(i) The investment manager has no ability to affect which public commentary is included or how the public commentary is presented on such independent social media site;
(ii) The commentators' ability to include the public commentary is not restricted; and
(iii) The independent social media site allows for the viewing of all public commentary and updating of new commentary on a real-time basis.