SEC’s 5 Things Not to Tell FINRA About Social Media Use

The SEC issued a new guidance update regarding the use of social media

More On Legal & Compliance

from The Advisor's Professional Library
  • Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times.  Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
  • 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.

Since the advent of social media, financial services professionals have feared violating compliance regulations. Out of an overabundance of caution, many have been unnecessarily filing materials with FINRA.

Recently, the SEC issued a new guidance update regarding the use of social media. This update offers detailed information on the types of social-media technologies and communications that must be reported. Here are the types of things FINRA doesn’t need to know about:

  1. An incidental mention of an investment company or fund family with no discussion of its investment qualifications does not need to be reported. For example, “Consumer Reports wrote an article that mentions our Brand X rewards card. Are you a member?” would not require reporting.
  2. Incidental use of the term “performance” in relation to a discussion of an investment company or fund without specific mention of a fund’s return. The word “performance” can be used as long as it’s not promoting a fund’s return. For example: “Click on this link to see full details of our yearly performance since inception.”
  3. A statement unrelated to the merits of a fund that includes a hyperlink to general financial and investment information. The SEC notes a company can tweet things such as “Here’s a Q&A with Portfolio Manager John Doe regarding his views on the economy for 2013” or “Gold and silver have provided a relatively low correlation to stocks and bonds over the last few years.”
  4. A response to a social-media inquiry that provides factual information without discussing the investment performance of a fund. If someone asks about the net asset value of a certain fund on a given day, for instance, a company may offer the figure.
  5. The SEC clearly states that financial service firms may talk about their products, provide links to information about their products and share general market commentary without needing to file this content with FINRA. Just be sure you don’t tweet returns and investment merits.

Former Forrester analyst Augie Ray argues that the financial services industry has been overly cautious in its approach to social media, missing opportunities to benefit customers as well as their own businesses. He urges companies to embrace social media more aggressively.

The guidance update indicates that companies may use social media for marketing, providing incentives, facilitating applications, inviting public feedback and engaging with current and potential customers.

If you’re interested in deploying a social-media strategy to boost your business, don’t hold back. By following SEC regulations regarding social media, you can leverage the force of social media without raising any red flags.

-------

Check out these stories on AdvisorOne:

Originally published on LifeHealthPro. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Reprints Discuss this story
This is where the comments go.