In December of 2020, the SEC amended the Investment Advisers Act of 1940 (the “Act”) with a new investment adviser marketing rule, which became effective in May of 2021. The SEC’s goal was to modernize the Act’s approach to marketing while consolidating the old marketing and solicitation rules into one.
Among other notable changes, the new rule (the “Marketing Rule”) allows investment adviser advertising to include both “testimonials,” which are reviews given by clients, and “endorsements,” which are reviews given by non-clients. As most investment adviser representatives recall from studying for the Series 65—the qualification exam required to work in the industry—testimonials and endorsements have been long-banned in investment adviser marketing. This historical ban was based on the rationale that third-party reviews may be a misleading, undue influence on a particular investor’s decision-making process.
Of course, times have changed, and the SEC’s Marketing Rule recognizes the key role that online reviews play in consumer purchasing decisions. Many of us would not even order food from a new restaurant without reading its Google or Yelp reviews first, never mind making much more consequential decisions about investing personal assets and retirement savings with a potential investment adviser.
The New Marketing Orthodoxy
In the modern marketing landscape, it is taken as self-evident that online reviews are among the most effective tools for driving new clients to a business. They factor heavily into consumer decision-making and are a key focus when marketing firms advise their clients about how to advertise.
Indeed, when designing business development strategies with new clients, marketing professionals often give the following type of advice, which appeared in a recent Forbes article: “[T]he single most important thing you can do to attract new customers is to take control of your online review score on sites like Yelp, Google My Business, FourSquare and TripAdvisor.” However, investment advisers need to tread cautiously when following this new piece of marketing orthodoxy.
SEC Concerns and the Marketing Rule’s Solution
To strike a balance between the value and risk of online reviews to investor decision-making, the SEC has put various safeguards in place to ensure that testimonials and endorsements are not misleading. The starting point of the Marketing Rule is that testimonials and endorsements, like all other investment adviser advertising, cannot include untrue statements of material fact or omissions that would make an otherwise true statement misleading.
Moreover, investment advisers must “clearly and prominently” disclose whether a testimonial was given by a current client, whether an endorsement was given by a person other than a current client, whether compensation was given for the testimonial or endorsement, and whether the person giving the testimonial or endorsement has any conflicts of interest. Simply put, reviews are now allowed, but they must come packaged with very specific disclosures.
The Spectrum of Online Reviews: Google My Business as a Case Study
Let us consider the Marketing Rule in the context of Google My Business, by which prospective customers can learn about a particular business, look up its hours and contact information, and in many cases read reviews from clients and others. Let us assume that a particular investment adviser follows the guidance of its marketing firm—which likely does not have securities law compliance on its radar screen—and sets up a Google My Business page, as so many in the industry have done.
If favorable comments about the investment adviser spontaneously appear on the listing, with no input or encouragement from the investment adviser, then the adviser is likely in the clear. The marketing rule applies to “advertisements,” which it defines as “[a]ny direct or indirect communication an investment adviser makes to more than one person . . . .” Unsolicited third-party reviews likely do not constitute “advertising” within the meaning of the rule because they are not “communications” of an investment adviser.
By contrast, this analysis fundamentally changes when an investment advisor pays for reviews. The marketing rule states that “[a]ny endorsement or testimonial for which an investment adviser provides compensation” is considered an advertisement. This makes sense, of course, since a paid online review is something akin to an actor giving a scripted testimonial in a commercial—an advertisement through and through.
On one end of the spectrum, there are unsolicited reviews that clients choose to write online regarding an investment adviser. Such reviews are not advertisements within the meaning of the Marketing Rule. On the other end of the spectrum, there are paid reviews that an investment adviser solicits. Such reviews are advertisements, and are therefore subject to the requirements of the Marketing Rule.
Now let us consider a middle ground: What would happen if an investment adviser were to take an active role in managing its Google My Business reviews? In such a situation, the investment adviser does not pay for reviews, but it solicits them.
The Anomalous Client
From a big picture standpoint, no matter how excellent a business may be, it is nearly impossible to keep every single client happy. However, businesses can exercise control over their online ratings by regularly encouraging their satisfied clients to leave reviews. A consistent stream of positive reviews serves to drown out the occasional—and potentially unjustified—negative review. This practice “buries any unfair negative reviews and ensures that the company’s ‘review ratio’ is healthy.”
While this may be a fine strategy for a typical local business that is not subject to state or federal investment adviser regulations, if an investment adviser were to do the same thing, it may inadvertently turn online reviews into “advertisements” subject to the strictures of the Marketing Rule.
Let us imagine a very common scenario: A frustrated client turns to Google or Yelp to leave an unjustified negative review about a financial adviser. In our hypothetical scenario, markets are down, and even though the adviser is outperforming its benchmark—which is down even more than the investment adviser’s portfolio—a particular client is upset to see their retirement income decreasing. As a result, the client turns to online reviews to air their grievances.
Outside of the investment adviser context, the solution is quite simple: Just ask happy customers to leave positive reviews to drown out and suppress the negative review. However, this marketing wisdom is exactly how investment advisers can run into trouble. The SEC explains as follows:
[I]f an adviser substantively modifies the presentation of comments posted by others by deleting or suppressing negative comments or prioritizing the display of positive comments, then we would attribute the comments to the adviser (i.e., the communication would be an indirect statement of the adviser) because the adviser would have modified third-party comments with the goal of marketing its advisory business.
In other words, if an investment adviser reacts to a negative review by encouraging satisfied clients to leave positive reviews, then its Google My Business profile may become an “advertisement” because the positive reviews would be considered an indirect communication of the adviser to market its services.
Moreover, the SEC explains that “[a]n adviser ‘adopts’ third-party information when it explicitly or implicitly endorses or approves the information.” So if an adviser encourages clients to leave reviews and involves itself in creating the content of those reviews, then the SEC explains that the adviser could be “liable for such third-party content under the marketing rule just as it would be liable for content it produced itself.”
In either case, we go back to where we started: The investment adviser must “clearly and prominently” disclose whether the review was given by a current client or non-client, whether the reviewer was paid, and whether the reviewer has any conflicts of interest. However, platforms such as Google My Business do not include obvious functionality for investment advisers to make such disclosures on individual reviews.
How Should We Advise Clients?
So, when we had to counsel an investment adviser on this topic, where did we land? We concluded that sometimes, unhappy clients are the very loudest voices, and if one such anomalous client leaves a negative Google review, then the adviser will have its hands tied in responding.
By doing nothing, the adviser would allow an uncontextualized negative review to harm its reputation. By asking all of its satisfied clients for positive reviews, the adviser would be “advertising” within the meaning of the Marketing Rule, and thus subject to the Rule’s requirements.
So for the time being, investment advisers may be well-served to hold off on a Google My Business profile and prioritize other marketing projects. If an adviser simply “must” have such a profile now, and it takes an active role in managing its reviews, then a potential solution is to post a reply to each one with the Marketing Rule’s required disclosures.
 U.S. Sec. Exch. Comm’n, Investment Adviser Marketing: A Small Entity Compliance Guide (2021), https://www.sec.gov/investment/investment-adviser-marketing.
 Investment Adviser Marketing Rule, 17 C.F.R. § 275.206(4)-1 (2021).
 See, e.g., Kaplan Series 65 License Exam Manual: Comprehensive Securities Licensing Exam Manual 213, 223 (10th ed., 2016).
 See Investment Adviser Marketing, Investment Adviser Act Release No. 5653, 86 Fed. Reg. 85-86 (Dec. 22, 2020) [hereinafter Release](adopting release).
 See id. at 85.
 See Cory Capoccia, Online Reviews Are The Best Thing That Ever Happened To Small Businesses, Forbes (Apr. 11, 2018), https://www.forbes.com/sites/forbestechcouncil/2018/04/11/online-reviews-are-the-best-thing-that-ever-happened-to-small-businesses/?sh=f690ce5740a0 (“90% of customers say that what they decide to buy is influenced by positive online reviews[.]”).
 See id.
 See Release, supra note 5, at 86.
 17 C.F.R. § 275.206(4)-1.
 Business Profile, Google, https://www.google.com/business/ (last visited May 26, 2022).
 A quick Google Search for “investment adviser [insert state name]” will yield countless Google My Business profiles of local investment advisers, typically including reviews.
 See 17 C.F.R. § 275.206(4)-1.
 See Capoccia, supra note 7.
 See id.
 See 17 C.F.R. § 275.206(4)-1.
 See Capoccia, supra note 7 (explaining that the practice of soliciting reviews from satisfied customers helps to ensure that the “‘review ratio’ is healthy”).
 Release, supra note 5, at 24.
 17 C.F.R. § 275.206(4)-1.
 Release, supra note 5, at 21.
 17 C.F.R. § 275.206(4)-1.
 See Business Profile, supra note 14.