Despite recent Securities and Exchange Commission guidance on social media use by advisers, compliance in regard to LinkedIn endorsements remains a murky issue, experts say.
“It's a legal quagmire,” said Crystal Thies, a former financial adviser and co-author of “The Social Media Handbook for Financial Advisers” (Bloomberg Press, 2012). “There really isn't clear SEC guidance on LinkedIn endorsements for anyone who sells securities or provides investment advice.”
The SEC in March released a guidance update stating that the term “testimonial” is not defined in the commission's rule on advertising by advisers. The update then said that SEC staff has consistently interpreted the term to include a “statement of a client's experience with, or endorsement of, an investment adviser.”
In LinkedIn's case, the issue is a question of semantics, according to Stephanie Sammons, founder and chief executive of digital marketing consultant Wired Advisor.
“It's the choice of the word 'endorsement' that creates the problem,” Ms. Sammons said, adding that if a firm doesn't have a rule against advisers allowing endorsements on their LinkedIn profiles, then it's up to the adviser to leverage that feature if he or she desires.
“It's subject to interpretation, and the regulations are ambiguous, in my interpretation,” Ms. Sammons said. “I don't see anything wrong with showcasing your endorsements on LinkedIn. There isn't any form of testimonial or written recommendation with a LinkedIn endorsement.”
In a recent blog post, “Should You Disable LinkedIn Endorsements?” Ms. Sammons pointed out that advisers have the ability to select and manage their listed skills.
She urges advisers to take advantage of endorsements because they display “social proof,” meaning an indicator in the online world of a person's authenticity and professional skills. Further, the “rule of reciprocity” is a benefit of LinkedIn endorsements because “giving leads to receiving,” Ms. Sammons wrote in her blog post.
Ms. Thies interprets the March SEC guidance, which pertains only to registered investment advisers, to mean that an RIA is only allowed to use endorsements, recommendations and testimonials if all comments get published, whether good or bad.
“You have to publish all of them, like on Yelp,” she said. “But with LinkedIn, you have the control to turn off endorsements, so the new guidance isn't saying you can or can't use LinkedIn endorsements.”
That leads back to the ongoing murkiness of the SEC's guidance on social media, said Amy McIlwain, president of Financial Social Media.
“The problem with endorsements is that they're like the 'like' button on Facebook,” she said.
In a 2012 ruling on social media, the SEC said that if the public is invited to “like” an adviser's online profile, that might constitute “an explicit or implicit statement of a client's experience with the investment adviser.”
That guidance is unclear because the SEC acknowledged that a “like” button might be considered a kind of testimonial depending on the facts and circumstances.