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Advisor Insights

Managing Online Advisor Reviews

The SEC's guidelines regarding online reviews are evolving. Here's what you need to know.

Social media and consumer review websites have exploded in popularity over the past decade. We're now at a point where many individuals turn to platforms like Yelp and others to read reviews of businesses before making purchasing decisions--or even before reaching out to those businesses in the first place. This isn't altogether surprising, given that our natural herd instincts and susceptibility to social influence often drive us to think or act in the same way as others around us. Studies have shown we are more likely to appreciate a restaurant, experience, service, or product if we see other people appreciating those same restaurants, experiences, services, or products. 

Yet as consumer reviews become a part of everyday decision-making, business owners are faced with the challenge of how to effectively manage their business's reputation online, both in terms of encouraging customers to leave positive feedback and (hopefully) providing products or services good enough to minimize or prevent negative feedback on these platforms.

Online Reviews and Advisors
Perhaps thankfully for financial advisors (or at least registered investment advisors), the playing field is somewhat leveled by Rule 206(4)-1 of the Investment Advisers Act of 1940, which explicitly prohibits the use of testimonials:

It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of section 206(4) of the Act for any investment adviser registered or required to be registered under section 203 of the Act, directly or indirectly, to publish, circulate, or distribute any advertisement which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser.

Despite the clear ban on the use of testimonials, the word "testimonial" is not actually defined in the rule, and in 2014 the SEC had to issue new guidance on their interpretation of what constitutes a testimonial given the rise of consumer review platforms. Specifically, the SEC's position is that whether or not commentary on a social media site is a testimonial depends on "all of the facts and circumstances," but that a "statement of a client's experience with, or endorsement of, an investment adviser" may very well be a testimonial and is therefore prohibited. Notably, the SEC clarified that publishing reviews or statements of a client's experience on an advisor's own website or social media site over which they have control (such as an advisor's Facebook page) is a prohibited testimonial, but reviews or statements on third-party sites over which the advisor has no ability to affect or restrict public commentary (such as Yelp) may be fine with regard to the testimonial rule.

Recent Enforcement Actions and New Precedent
Following the SEC's 2014 guidance on the testimonial rule and online reviews, there was a consensus among many RIAs that it was OK to have a Yelp or Google Business page with client reviews posted to it, so long as advisors had no ability to control those reviews. Additionally, many interpreted the SEC's guidance as allowing advisors to actually request that clients leave reviews on these sites, so long as they asked all clients and not just those who might be more inclined to leave positive feedback.

Just last month, however, the SEC announced it had levied substantial fines of $10,000 to $35,000 against multiple advisors and a marketing consultant for violations of the testimonial rule. According to the SEC's press release on July 10, it had charged the marketing consultant, a Registered Investment Adviser, and three investment advisor representatives with violating the rule by retaining said marketing consultant to reach out to the advisors' clients and ask them to post reviews to Yelp on their behalf. The SEC interpreted this as the advisors themselves asking clients to post reviews to Yelp, and thereby exerting a controlling influence on the reviews posted as a result of their solicitation. In another enforcement action announced in the same release, the SEC fined a registered investment advisor $15,000 for publishing two YouTube videos that contained multiple client testimonials.

These actions by the SEC are significant in that they set a new precedent when it comes to soliciting and publishing client reviews online. Whereas advisors may have thought they were in the clear when asking all clients to leave feedback on Yelp or other "independent" consumer review sites, it is now considered an illegal testimonial solicitation. And while the second case of publishing testimonials in YouTube videos appears to have involved actual clients on camera discussing their experiences, it is likely safe to say that publishing or promoting client reviews from Yelp, Google, or elsewhere on an advisor's website or other marketing channels could also constitute a violation of the testimonial rule and potential enforcement action by regulators.

How Advisors Should Manage Online Reviews
Given the SEC's 2014 guidance and recent enforcement actions, it is worth noting that it is OK for clients to independently leave reviews for advisory firms or their representatives, so long as they are not solicited, and they are posted to platforms where the advisor has no affiliation with the platform and no authority to control the reviews posted. Knowing this, and as platforms like Yelp and others grow ever more popular, it is highly likely an advisor will have (or has already had) clients independently post reviews online, and it's important for advisors to know the rules.

With the key theme coming from the SEC being "independence," platforms where advisors can control or edit reviews such as Facebook or LinkedIn pages should have the review and endorsement features disabled. While these platforms aren't banned outright, and "likes" on either aren't quite a "statement of a client's experience," advisors should still be careful with regard to comments posted to these platforms that could more easily be interpreted as testimonials. This is especially true if an advisor is using these platforms extensively as part of his or her marketing strategy and is directing traffic to them.

For platforms where reviews cannot be controlled or disabled, such as Yelp and Google business listings, it would be convenient if advisors could simply avoid them entirely. However, this isn't as easy as it sounds in today's digital age, as a listing can be created on either site without a business owner's authorization by anyone who wants to leave a review. As a result, it is worth claiming listings on both platforms to ensure they don't fall into the wrong hands, and that key business information such as your office address, phone number, and website are listed correctly. Beyond claiming their own listings, advisors should think carefully about posting ongoing content, and should not direct clients to these sites to leave reviews. Further, and given the SEC's recent enforcement actions, it would be wise to avoid publishing any independent reviews left on these sites to other channels over which advisors have control, such as their own websites, YouTube videos, and other social media outlets, unless (per the SEC's guidance) they are able to publish the unedited reviews from these independent sites in their entirety, to avoid implicating the testimonial rule.

While it can be tricky to navigate both the compliance concerns regarding these digital tools and the challenge of managing online reviews and reputation, perhaps the best strategy to avoid potential rules violations and a damaged online reputation is to focus on providing an excellent client experience, and avoid operating in a gray area when it comes to your use of online review platforms. Should clients feel independently compelled to leave a positive review on a third-party site thanks to your level of service, it may help you win more business. And if you abstain from soliciting or promoting reviews, you’re unlikely to fall into hot water with regulators.

Ben Brown is a certified financial planner and an IRS-enrolled agent. He is the founder of Entelechy, a fee-only financial planning and investment management firm based in Bethesda, Maryland, serving clients in the Washington, D.C., area and nationally.

The author is a freelance contributor to Morningstar.com. The views expressed in this article may or may not reflect the views of Morningstar.