More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Asset managers have shown a “giant leap forward” in their “adoption and implementation” of social media since last year, a new report by Cerulli Associates has found.
In 2010, while 70% of asset managers remained on the social media “sidelines,” today, Cerulli says, "nearly as many are actively employing social media in their marketing efforts and one-quarter are in the exploratory phase." The majority of managers (63%) that had been in the “exploratory phase” in 2010 are now using social media, Cerulli found, while 13% of asset managers now see social media as a key element in their marketing strategy. Six percent of asset managers, however, prefer to remain on the sidelines of social media use, the report said.
The report, “How Are Firms Steering Social Media to Optimize Opportunities and Mitigate Risks?,” which includes findings from a proprietary study performed by Cerulli in conjuction with NICSA, found that many managers fail to see a meaningful “first movers’ advantage” and are deliberately venturing slowly into social media in order to glean best practices from other managers’ experiences. That being said, Cerulli adds that as “they witness social media use skyrocket, most managers are increasingly unwilling to postpone participation.”
Because of the meteoric rise in social media use—Cerulli notes that Twitter was founded in 2007 and is estimated to have 200 million users today—“managers are scrambling to operationalize social media strategies,” the report states.
When managers do incorporate social media into communications strategies, most turn to Twitter, the report found. Of managers surveyed by Cerulli, 56% are using Twitter, compared to only 38% using Facebook and/or LinkedIn. “Twitter’s initial attractiveness stems, in part, from its ease of use,” Cerulli says. “Twitter restricts individual tweets to 140 characters or less—this microblog format means that copywriters and compliance examiners are not charged with creating or reviewing multiple pages of text—minimizing the impact on already burdened personnel.”
Most managers, the report found, are putting themselves in “the drivers’ seat” so they can their steer social media use. Cerulli identifies four levels of commitment to social media use among asset managers: committed adopters; guarded adopters; sidelined supporters; and abstainers.
Cerulli calls committed adopters “a small, but devoted, group,” who tend to be large asset managers that are focused on direct-to-investor distribution. “Committed adopters were the first to embrace social media and are its heaviest users. For these firms, social media is typically a key part of their marketing strategy,” Cerulli says.
Guarded adopters are the largest group of managers, Cerulli found. “This cohort uses social media tools but has not—mostly by design, sometimes by default—utterly embraced social media” because “they are not fully convinced that the results of a social media campaign will sufficiently justify its inherent risks and resource requirements.” Quite often, Cerulli said, guarded adopters are on the road to becoming committed adopters, but are in the process of fully operationalizing their social media effort addressing recordkeeping requirements.
Sidelined supporters generally buy into the touted merits of social media, Cerulli states, “but lack the resources or expertise to launch an initiative at this time.” Many of these firms are in the exploratory phase. Abstainers, on the other hand, are “resolute” in their decision to remain on the sidelines. “They are often boutique managers, unconvinced that the benefits of social media outweigh the risks. Within this small group, 71% cite compliance as a primary impediment,” Cerulli said.
However, Cerulli says that firms remaining on the sidelines, including abstainers, should, nonetheless, “adopt a proactive stance to social media” so they can “monitor competitors and both address potential employee issues and the possibility of negative postings about the firm.”
When it comes to compliance, most managers engaged in social media treat all posted content as advertising for compliance purposes, Cerulli found. More than one manager told Cerulli analysts “that their firms approach all social media content in the same manner in which they manage all marketing material—it must be reviewed by a registered principal and the turnaround time must not exceed two-to-three weeks.” When it comes to social media, Cerulli says, “timeliness is an issue and becomes a greater challenge when review by the Financial Industry Regulatory Authority (FINRA).”
As to which departments shoulder the burden for “signing off on social media content,” Cerulli says it’s the compliance and marketing departments at asset management firms. The principal risks involved with social media: compliance and reputational risk. As one manager told Cerulli: “We need to ensure compliance hurdles are overcome and information technology tracking is in place to ensure we are properly covered to launch a campaign in this new medium.”