The SEC brings its adviser advertising rules into the internet age

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The changes should allow advisory firms to make better use of social media.

The Securities and Exchange Commission wants to revamp its rules governing adviser advertising, and the changes should allow financial advisory firms to make better use of social media.

[More: SEC promises revised advertising rule soon]

The SEC’s move, while welcome, is somewhat overdue.The commission is proposing to revise rules that have been in place since 1961, which, when it comes to the development of the internet and social media, is several lifetimes ago.

For starters, the proposed rule rewrites the SEC’s definition of advertising, which currently says advertising involves written communications and TV and radio ads. The new rule defines advertising as “any communication, disseminated by any means … that seeks to obtain or retain advisory clients or investors.”

That revised definition is expected to help clear up advisers’ jitters about using social media, and it should also be more flexible as technology evolves going forward.

[More: SEC proposes allowing advisers to use testimonials, endorsements in ads]

In another big change, the SEC will now let advisers post testimonials, endorsements and third-party ratings on social media. This change means firms will no longer run into the sort of problem experienced by an Illinois registered investment adviser when it posted a video about its 50th anniversary on its website and YouTube. Because the video included customers talking about the firm, it was slapped with a $15,000 fine by the SEC.

The SEC’s proposed rule would also let firms share their investment performance while requiring them to adhere to certain standards, such as including one-, five- and 10-year comparisons. And it updates the rules on solicitation, which cover compensation to those who refer investors to advisers.

The SEC has a tough job when it comes to monitoring advisory firms and detecting any attempts to rip off investors. But advisory firms have a tough job when it comes to building their client base, and these days, a lot of marketing and advertising strategies involve social media. It’s to the SEC’s credit that it is working on bringing its advertising rules up to date.

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