Like It Or Not: Social Media and the Testimonial Rule

Social media took center stage again when the Division of Investment Management of the Securities and Exchange Commission (“SEC”) released long awaited guidance on the applicability of the testimonial rule under the Advisers Act to the growing use of social media by investment advisers. But is it the Liberty Bell of social media freedom ringing in a new era of marketing, or is it the death knell of current investment advisory practices?

While the March 2014 Guidance Update expands on the social media risk alert issued by the SEC in January 2012, the latest guidance appears to have missed its mark. Rather than substantive guidance pertaining to the application of the testimonial prohibition, the guidance instead announced the permissibility of electronic social activity that, to date, has largely gone unused or perhaps even desired by investment advisers, such as republishing Angie’s List or Yelp reviews of their firms. As such, the Guidance Update remains noticeably silent as to the clarifications on which many advisers sought guidance – namely, issues like “How can my firm and employees leverage Facebook for business purposes?” and “What marketing can my firm do on LinkedIn or Twitter without running afoul of the prohibition under the Advisers Act on testimonials?”

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