More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
Develop Ad Policy
Advisors and their firms must have policies in place to govern how they address social media and how they train people to use it. Who is allowed to post content? Can they post from home networks or mobile devices? What is appropriate to post? In the end, a firm’s social media policy should be an important part of the organization’s overall operation and risk management policy.
Not only that, but the smartest firms address social media risk with the aid of technology. After establishing a policy and choosing its technology, the firm needs to educate employees so they understand how to best tap into the social networks, intelligently and compliantly. Blanket policies that prohibit advisors from posting just don’t work. Those who obey will miss out on business opportunities and those who want to use social media will find ways to do so, leading to even greater regulatory risk.
Monitor and Educate
The key, of course, is educating and supervising advisors to make sure they are not posting inappropriate content. Social content can be considered “advertising” for regulatory purposes and must be treated as such. One option is prohibiting the use of certain terms in social-media postings, like “guaranteed” or even “recommend” or “endorse” to make sure your group is not running afoul of Rule 206(4)-1 of the Investment Advisers Act, which includes prohibitions regarding past recommendations of securities and customer testimonials.
Social media content needs to be monitored: Any discussion of fund performance that mentions elements of a fund’s return (e.g., one-, five- and 10-year performance); that promotes a fund’s returns; or communication initiated by the issuer that discusses the investment merits of the fund, needs to be preapproved by a principal of the firm.
Keep Good Records
Not only do firms need to monitor social media activity, they are required to keep records of all business communications on social networks. Specifically, digital communication, including tweets, Facebook postings and Instagram photos are all governed by rules that require capturing and archiving.