In March, the Securities and Exchange Commission (“SEC”) issued guidance regarding the testimonial rule under the Investment Advisers Act of 1940, as amended (“Advisers Act”) and investment advisers’ use of social media. The SEC noted that it had received questions regarding investment advisers’ use of social media and publication of advertisements that included commentary about the adviser that appeared on social media sites.
Rule 206(4)-1(a)(1) of the Advisers Act prohibits an investment adviser from publishing, circulating or distributing any ads that refer (directly or indirectly) to any testimonial regarding the investment adviser or advice provided by such investment adviser. The SEC has previously advised that, subject to certain exceptions, an article by an unbiased third party regarding an investment adviser’s performance is not a testimonial. The SEC provided clarification regarding when an adviser can publicize information appearing on a third party/independent social media site. First, the investment adviser may not have any ability to affect the public commentary included on the social media site, the commenters’ ability to provide comment cannot be restricted and the social media site must allow all public commentary to be viewed on a real-time basis. Second, publicizing such information would not be in violation of the Advisers Act if:
- the independent social media site provides content that is independent of the investment adviser;
- there is no material connection between the independent social media site and the investment adviser that would call into question the independence of the independent social media site or commentary; and
- the investment adviser publishes all of the unedited comments appearing on the independent social media site regarding the investment adviser.
The SEC’s guidance also addresses a number of comments regarding specific types of information about the investment adviser that may appear on third party social media sites. The full SEC guidance may be found here.