It’s About Time: FTC 16 CFR Part 255
October 12, 2009 by Ron Rowland
Filed under Commentary, ETFs, Regulation & Legislation
Proper disclosure means different things to different people. In the investment “advice” world, proper disclosure is different for Registered Investment Advisors than brokers or insurance agents. In the investment “publishing” world, publishers typically try to hide behind their “freedom of speech” rights. However, in the past, the Federal Trade Commission (FTC) has gotten involved in areas where financial regulators feared to tread.
With many new media (blogs, twitter, content aggregation sites) outlets operating in unregulated wild frontier mode, the FTC saw fit to try to restore some sense of order. FTC 16 CFR Part 255 says that effective December 1, those that review products must disclose any connection with advertisers.
This has been a long standing policy with many in the financial world. For example, Seeking Alpha requires that contributors with Gold Standard Certification “… must disclose if they are employed by a company whose stock they are writing about; perform consulting for a company they write about; receive paid advertising revenue or any other form of sponsorship fee from a company they write about.” However, this policy is “self-enforced by contributors” and Seeking Alpha does not have any mechanism to ensure contributors are making such disclosures. Nor is there any penalty for failing to do so, other than having future contributions potentially rejected by Seeking Alpha.
I have yet to see a financial website article or blog post disclose the receipt of advertising revenue from the firms behind the products they are writing about. To me, this is a blatant conflict of interest. I’d like to think that somebody, somewhere has done it, but to my knowledge, no author/contributor has ever disclosed the receipt of advertising revenue (either directly or indirectly) from iShares, WisdomTree, or other ETF sponsors when writing a review of one of those products.
Perhaps this will change on December 1. In the mean time, everyone should be aware that proper disclosures are not being made and those glowing reviews may not be truly independent.
Disclosure (as required by FTC 16 CFR Part 255): I have no positions in any individual securities mentioned. I have no positions in any of the companies or ETF sponsors mentioned. I have never received any income, revenue, or fees from, or on behalf of, any of the companies or ETF sponsors mentioned.
One of the best disclosures that I’ve seen is that of a fund manager of a fund that I have a stake in. His disclosure is something like this. “My entire portfolio and that of my Mother is invested in this fund. I put all my eggs in one basket and watch that basket very closely.”
A watchdog group who would catch such promotional schemes that you mention and post names would be nice. Something like a Snopes for investment advice.
[...] This post was mentioned on Twitter by tom brakke and Ron Rowland. Ron Rowland said: Most of the glowing ETF reviews you've been reading haven't disclosed their ad revenue conflict of interest. http://bit.ly/qxflI #etf #mkt [...]