Although a new feature on LinkedIn, the popular social network, could be presenting compliance problems for financial advisors in the U.S., Canadian financial services regulators have yet to take a stand on the issue, says Greg Pollock, president and CEO of Toronto-based Advocis.

This past autumn, LinkedIn introduced its “endorsements” feature, which allows users to endorse the skills of people listed as “connections” on their profiles. These endorsements can be made without the approval of the person being endorsed. The endorsements then are listed on the endorsed person’s main LinkedIn profile.

Although the endorsement feature may seem innocuous for many professions, it could present problems for financial advisors in the U.S., who are subject to rigid rules regarding their online communications.

At issue is whether the endorsement of a skill on LinkedIn could be considered a “testimonial,” which is prohibited by the U.S. Securities and Exchange Commission’s (SEC) Advisors Act. Under that act, anyone licensed to give investment advice is forbidden from using testimonials in his or her communications.

The SEC already has ruled that LinkedIn “recommendations” – in which LinkedIn users can promote one another – are testimonials. The regulator has banned the use of such recommendations by financial advisors, who must disable that feature on their LinkedIn profiles.

The SEC is examining LinkedIn endorsements to determine whether they should be deemed testimonials and thus prohibited under the act.

In Canada, however, where testimonials are allowed on financial advisors’ marketing materials, advisors can use recommendations. Canadian regulators have yet to take a stand on LinkedIn endorsements – or even acknowledged that they are a potential problem.

“The SEC has taken it a step further relative to Canada,” says Pollock. “We [in Canada] seem to be a bit more flexible with the rules.”

But it is still early in any possible regulatory process, he adds, and regulatory bodies such as the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA) will respond should the need to legislate arise.

Says Barb Amsden, director, strategy and research, with the Investment Industry Association of Canada (IIAC), in an email: “As with any relatively new feature, we’re in the process of reviewing it from a compliance perspective.”

There was no reply to interview requests made to both the MFDA and IIROC.

Meanwhile, in the absence of a commitment from regulators, you should monitor carefully what you say – and what is said about you – on your social media platforms. If you use LinkedIn’s endorsement feature, you should do so with caution because endorsements can contain incorrect information.

@page_break@Your LinkedIn connections can endorse you for skills that have not been listed among your areas of expertise. Endorsements can be made without your prior approval and can be made for skills in which you are neither an expert nor qualified. For example, a LinkedIn user could, incorrectly, endorse a mutual fund salesperson as an investment advisor.

Shauna Trainor, marketing manager with Toronto-based Covenant Group, which provides training and marketing assistance to advisors, says that even though the regulatory restrictions on social media are more relaxed in Canada than in the U.S., you should still be mindful of what you post – and whom you endorse – online.

Pollock agrees, particularly given that many users in the LinkedIn community seem to be using the “quid pro quo” philosophy – “If you endorse me, I will endorse you” – even if they are connected only loosely.

Moreover, with the volume of endorsements being offered throughout LinkedIn, Trainor questions the value of these digital nods.

“I think the problem with the endorsements,” she says, “is that they are getting out of control and they have become meaningless.”

Pollock admits to having similar concerns, but says he understands advisors’ efforts to embrace new ways to promote their businesses in this digital age.

Still, he says, having a list of skills endorsed by your LinkedIn connections should not be the cornerstone of any advisor’s business-building strategy.

“[Advisors] need to do a lot more,” he says. “They need to speak to their own network of friends and do what they’ve always done.”

If you wish to opt out of receiving LinkedIn endorsements, you can turn off the “endorsements” feature on your account. This will remove all of the skills that others have endorsed and also will remove the graphics showing who has endorsed those skills.

Trainor, however, recommends that you carefully manage the endorsements section of your profile instead of cutting it out completely. You can delete individual endorsements that are inaccurate or misleading.

As well, Trainor suggests, cast a tighter net and narrow the number of skills that you consider to be part of your expertise.

“Break it down to what you think you are good at,” she says. “If somebody raises [another skill] that you think you aren’t good at, then you shouldn’t think twice about taking it off. If it isn’t one of your main skills that you can defend, then you shouldn’t let somebody else defend that for you.”

© 2013 Investment Executive. All rights reserved.