New FTC Rule on Insider Reviews

Having followed recent legal developments in investment advisor marketing, it was interesting to see that the FTC’s new rule on insider reviews (link in comments) applies similar principles of transparency and disclosure to various other industries.

The FTC rule prohibits businesses from soliciting or posting reviews written by insiders—like management, employees, and their family members—unless the relationship is clearly disclosed. The reasoning is simple: When consumers read reviews, they assume the reviews are written by disinterested parties. In the event of an undisclosed relationship, consumers can be misled, and the review is considered deceptive. So, whether an officer posts a glowing review or their family member leaves positive feedback, the relationship must be disclosed to avoid omitting information that could mislead consumers.

For businesses, this is a moment to draft compliant policies and implement transparent practices regarding reviews and testimonials. It's also a good opportunity to analyze existing reviews and determine whether any of them are really insider testimonials that merit additional disclosures.

Being transparent about who’s behind a business' reviews not only mitigates legal risk but reinforces consumer trust. This is an important combination for long term success and sustainability.

Press release about new rule: https://www.ftc.gov/news-events/news/press-releases/2024/08/federal-trade-commission-announces-final-rule-banning-fake-reviews-testimonials

Adopting release and text of new rule: https://www.ftc.gov/legal-library/browse/federal-register-notices/16-cfr-part-465-trade-regulation-rule-use-consumer-reviews-testimonials-final-rule