Adviser Use of LinkedIn May Violate SEC Rules

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I’m going to open up a topic that has the potential to create a bit of controversy.  Here’s my bold statement:

Investment advisers registered under the SEC who use the “Recommendations” feature of may be in violation of Rule 206(4) of the Investment Advisers Act of 1940.

I’ve discussed this topic with several members of my local financial planning community, including investment adviser litigation defense attorneys.  More recently the topic has come up in discussions with other professionals I have connected with through Twitter, including Susan Weiner, CFA and Kristen Luke.

Investment Adviser Rules

Let’s start with Rule 206(4)-1(a)(1).  It says the following:

a. It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of section 206(4) of the Act for any investment adviser registered or required to be registered under section 203 of the Act, directly or indirectly, to publish, circulate, or distribute any advertisement: (1) Which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser

This rule explicitly prohibits the use of testimonials of any kind, whether they directly or indirectly refer to the investment adviser.  Testimonials cannot be published, directly or indirectly, by registered advisers.

LinkedIn Recommendations

LinkedIn Recommendations allow users of the online social networking website to post recommendations and endorsements that appear on the profile page of other users.  Recommendations are useful for supervisors to provide valuable feedback concerning the performance of an employee, or perhaps business owners to comment on the performance of contractors.

As LinkedIn becomes increasingly ubiquitous in the social networking space, I see more and more investment advisers that have set up profiles on the site.  A LinkedIn profile not only helps advisers connect with other advisers and colleagues, but it can also attract prospects and potential clients searching for a qualified adviser.

But what happens when investment advisers registered with the SEC begin to receive recommendations that are posted to their profile?

Any Testimonial of Any Kind

We’ve plainly seen in IAA of 1940 that testimonials of any kind are strictly prohibited by Rule 206(4)-1(a)(1).  So what is an adviser to do?

I believe the answer is that all State and SEC-registered investment advisers must never allow LinkedIn Recommendations to be posted to a public LinkedIn profile.

Are there any real cases where the State or SEC has fined an adviser or issued a deficiency notice?  I have not heard of any as of the date of this post.

However, I would prefer that the first public reference to such a case not feature my name in it.  As such, I do not permit any recommendations to be posted to my LinkedIn profile. I recommend that registered investment advisers clear their profile of recommendations as well.


19 Responses to “Adviser Use of LinkedIn May Violate SEC Rules”

  1. Russ March 16, 2009 7:31 am

    Great post, Bill, and thanks for the information. In an effort to be safe rather than sorry, I too have removed my recommendations from my LinkedIn profile.

    Will be interested to see how compliance evolves to consider these great new tools like LinkedIn, Twitter & FaceBook and whether compliance will be able to keep up with the quickly developing technology.

  2. Damon Deru March 16, 2009 7:32 am

    Good post Bill! I think it’s a good reminder, and it’s better to be safe than sorry in my opinion. The last thing an RIA needs right now is a lawsuit due to some two sentence “recommendation” on their Linked-In profile-

  3. Tom Gartner March 16, 2009 8:26 am

    Good info as always Bill. I just figured out how to pull my 11 recs down from the site. Too bad, but better safe than sorry. Take care.

  4. Jude March 16, 2009 2:38 pm

    Bill I’ve been saying this for a while. I had the developers of a new financial planning portal look into this and they’ve come to the same conclusion. Thanks for bringing this further into the collective conciousness.

  5. TimK March 17, 2009 7:54 am

    Great question. I’ve also wondered about sites such as angies list that rate financial advisors. I cross-posted this to the NAPFA discussion forum…

  6. Rich March 17, 2009 1:02 pm

    This does bring a new dynamic into online social networking. I wonder how this will impact regulation going forward, not to mention monitoring. This would be a great compliance topic for any NAPFA or FPA chapter to host as at a compliance meeting. I’m sure there are many who are in violation, just through ignorance. Thanks Tim for posting this in NAPFA, otherwise, I’d fall into this category.

  7. Curt Weil March 19, 2009 11:03 am

    I just took this to my compliance consultant who asked: did you solicit the endorsements? (No.)Do you refer prospects to them? (No.)Do you have any control over the endorsements? (Yes – at least on LinkedIn, not on Angie’s list.)
    His recommendation is to leave them alone; he commented that the S.E.C. needs to come to grips with the new age, and until they require that I cause the endorsements to be hidden, I should leave them. “Let it be the one thing they find to write you up for.”

  8. Bill Winterberg March 19, 2009 12:37 pm

    @Curt Weil,

    Thanks for your comments and feedback. I don’t follow how the examples you cited can help one make a determination regarding the compliance of LinkedIn Recommendations.

    Rule 206(4) is very clear: no testimonials of any kind, even if they’re published directly (on your website) or indirectly (LinkedIn Recommendations, in my opinion) by the adviser.

    It’s your LinkedIn profile; you manage it. You determine what shows and what does not. Therefore, if you decide to leave Recommendations left by others visible, you are indirectly circulating them.

    I can be persuaded on how I interpret this issue, provided the facts on why LinkedIn Recommendations are permissible are well founded. However, the compliance attorneys I’ve consulted have different opinions than the consultant you asked.


  9. Dylan March 19, 2009 12:38 pm

    The issue isn’t whether someone else makes a testimonial. It’s whether you, as an IA, draw attention to in advertising. Others can say/write whatever they want; IAs just can’t “publish, circulate, or distribute any advertisement which refers, directly or indirectly” to it.

    I hope everyone keeps in mind that these are laws are in place for consumer protection (from fraud, deception, and manipulation). I think it is irresponsible to say “I’ll do it until they tell me to stop” or “let it be the one thing they find to write you up for.” What kind of message doe that send to the public about RIAs?

    If you want to do it, why not just ask an SEC or state examiner first?

  10. Susan Weiner March 22, 2009 11:30 am


    I agree that advisors should beware. Saying that the SEC should come to grips with recommendations does not make it so.

    However, I’ve seen some evidence that the SEC may change, as I mentioned in a 2006 article (
    quoted below.

    “Marshall foresees an easing of the prohibition against RIAs using testimonials and examples of specific past recommendations in their marketing materials. He also predicts that managed accounts will attract more regulatory attention. ‘Just because something is popular, it’ll get looked at,’ the former SEC official says.

    This is also something I’ve posted about (

  11. Susan Weiner March 22, 2009 11:33 am

    By the way, thanks for citing my blog in your post!

  12. Becky Martz March 23, 2009 7:08 am

    Is there a simple way to just disable the recommendation feature in LinkedIn? (I’m a LinkedIn newbie. So I haven’t figured out all the features yet)

  13. Bill March 23, 2009 8:03 am

    Hi Becky,

    I don’t think there is a way to completely disable the recommendations feature of LinkedIn. However, I do seem to remember that users can approve or deny recommendations submitted by other connections.

    This will allow users to prevent recommendations from getting posted to the main profile page. As always, simply clicking on the recommendations item in the navigation bar opens a window where existing recommendations can be removed.

    Hope this helps,

  14. Saundra Davis April 2, 2009 8:19 pm

    To hide your recommendations:

    Edit your profile and scroll down to your recommendations and again select the “edit” box – you will then be able to click/unclick the check box that “shows” your recommendations.

  15. Bill Winterberg April 2, 2009 9:08 pm

    @Saundra Davis

    Excellent! Thanks for the tip on hiding recommendations. Advisers will want to take note how this is done.



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