More On Legal & Compliancefrom The Advisor's Professional Library
- Registration Requirements for Investment Advisor Representatives (IARs) When individuals launch an advisory firm, they must avoid marketing themselves or the firm as investment advisors before they are properly approved and registered. Otherwise, they are subject to severe penalties.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
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.