While the guidance did not provide much clarity on ongoing sticky issues such as whether LinkedIn "endorsements" constitute testimonials, it did provide important clarification to one key area: third-party adviser review sites. Specifically, the SEC affirmed that as long as the adviser has no ability to change or alter the public commentary and that all of it will appear (good reviews and bad), then advisers do not have to worry about whether clients posting reviews on such sites will trigger a violation of the testimonial rule. Simply put, as long as the review site and the reviews themselves are beyond the adviser's control, the adviser won't be held accountable for any positive reviews (i.e., testimonials) that appear; in fact, the SEC even declared that advisers could cite the average score of the reviews (e.g., "Joe Smith Advisory Services has an average client rating of 4.5 out of 5 stars on ABC Review Site!").
While the new guidance clarifies that advisers don't have to worry about whether third-party review sites will get them in trouble with regulators (though whether advisers get bad reviews in the first place is still their responsibility), the notable aspect of the SEC's guidance is that it also clears the way for adviser review sites as well, effectively showing such sites exactly what advisers can and cannot control without running afoul of the rules. In other words, get ready for a whole lot more "adviser review" websites to start springing forward.
The caveat, however, is that the third-party reviews still must maintain independence from the adviser. The SEC specifically cautions against advisers trying to compensate clients with discounts or offers of free services to induce them to leave reviews, and certainly they should not directly or indirectly author any reviews themselves. In turn, this raises the question of how many reviews will realistically be left for most advisers' profiles. If only 1%-2% of clients actually voluntarily go out of their way to post a review, when many advisers have no more than 50 to 100 (or maybe 150 active clients), there literally may be no more than 1 to 3 reviews in total, which is hardly enough to be a credible critical mass for consumers. In other words, just because adviser review sites will now be permissible still doesn't mean they'll actually be able to grow enough to really be useful for consumers.
Nonetheless, given how popular such services are in other industries — most notably, major platforms such as Yelp — expect to see a whole lot more adviser review sites coming soon now that the SEC has given them a blessing.
Disclosure: Michael Kitces has served in the past as a consultant to and is a member of the advisory board for BrightScope.
Michael Kitces is a partner and the director of research for Pinnacle Advisory Group, and publisher of the financial planning industry blog Nerd's Eye View. You can follow him on Twitter at @MichaelKitces, or connect with him on Google+.