An Open Letter To SEC Chair Mary Jo White: Please Modernize The RIA Testimonial Rule So That Consumers Could Rely On The Web To Connect Them With The Best Advisors Hot

 

Admittedly, there is a risk that, given the freedom to use crowd-sourced data in advertisiing, some RIAs might try to rig the system by engaging in deceptive Internet marketing practices to increase their Likes, star ratings and Linked recommendations and endorsements. But an advisor can use a phone to commit fraud and the SEC does not ban the use of the telephone by advisors. In fact, it doesn’t even require you to keep a record—much less a recording—of all client phone calls!

 

Regs supporting the Investment Advisers Act of 1940 have historically changed to accomodate new media and communication systems over the past seven decades, enabling advisors to communicate and advertise using fax machines, email, and websites. Social media is just another medium for communication. If advisor is hellbent on defrauding people, the mode of communication is not the cause.  

 

And if you’re really worried about an advisor gaming the system by generating fake reviews, recommendations or star ratings from non-existent people or tricking people into liking them, simply impose stiff penalties—like a lifetime ban from the investment advice business.

 

The SEC has been incredibly opaque about RIA use of social media and it's hurting consumers as well as the good, honest, hard-working professionals who would benefit most from increased transparency.

 

Fixing all this is pretty easy. Start by getting the agency to answer some very basic questions:

 

1.       Can RIAs and IA reps make a “Facebook” fan page for an RIA or IA rep?

2.       Can an RIA and IA Rep advertise how many fans or likes are accumulated?

3.       Can an RIA and IA rep make a fan page on Facebook for an idea or solution (i.e., an RIA or IA rep might post a fan page for Miami Beach Index Fund Investors, a charity event, or for Retirement Income Portfolio Solutions)?

4.       Can RIAs and IA reps show endorsements and recommendations on their LinkedIn profile page?

5.       Can RIAs advertise their Google Reviews and ratings on their websites and elsewhere? (Why not? Since they do not control what other people say about them, why no allow them to use crowd-sourced data in ads and Form ADV?)

6.       Are there some boilerplate disclosures you would like RIAs and IA reps to use when signing people up as connections or on their social media pages?

With great respect for your work and reputation, I ask you to consider helping the SEC get out of the way and allowing the transparency of the Web to connect the best advisors with consumers at better prices.