Social Media and You

Social media: Those two words have become ever present in our daily lives and it’s safe to say that, to some extent, a good portion of us use a social media outlet on a daily basis.

While some advisors remain skittish on social media use, others are jumping in full force. Marla Bace, chief marketing officer at Brinton Eaton, a wealth advisory firm in Madison, N.J., says advisors see social media as the latest “must understand” to grow their business.

Yet others are finding ways to exploit social media tools with evil intent. Case in point: The SEC on Jan. 4 charged an Illinois-based advisor with offering to sell fictitious securities on LinkedIn.

The SEC’s Division of Enforcement alleged that Anthony Fields of Lyons, Ill., offered more than $500 billion in fictitious securities through various social media websites. For example, the SEC says he used LinkedIn discussions to promote fictitious “bank guarantees” and “medium-term notes.” The postings resulted in interest from multiple purported potential buyers.

The SEC’s order instituting administrative proceedings against Fields says that he made multiple fraudulent offers through his two sole proprietorships—Anthony Fields & Associates and Platinum Securities Brokers. Fields, the SEC says, provided false and misleading information concerning AFA’s assets under management, clients and operational history to the public through its website and in SEC filings. He also failed to maintain required books and records, did not implement adequate compliance policies and procedures, and held himself out to be a broker-dealer while he was not registered as such with the SEC.

Carlo di Florio, director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), warned in announcing the charge that as investment advisors increasingly utilize social media to communicate with clients and potential clients, “firms need to be mindful of the applicable standards governing those communications.”

Alerts From the SEC

On the same day in early January, the SEC released a National Examination Risk Alert titled “Investment Adviser Use of Social Media,” which provides SEC staff observations based on a review of investment advisors of varying sizes and strategies that use social media. In growing numbers, the SEC says, registered investment advisors are using social media to communicate with existing and potential clients, promote services, educate investors and recruit new employees.

The alert reviews concerns that may arise from use of social media by firms and their associated persons, and offers suggestions for complying with the antifraud, compliance and recordkeeping provisions of the federal securities laws. The alert notes that firms should consider how to implement new compliance programs or revisit their existing programs “in the face of rapidly changing technology.”

The SEC’s Office of Investor Advocacy also issued an Investor Alert titled “Social Media and Investing: Avoiding Fraud,” designed to help investors be better aware of fraudulent investment schemes that use social media, and provides tips for checking the backgrounds of advisors and brokers.

Finally, the agency released an Investor Bulletin titled “Social Media and Investing: Understanding Your Accounts,” which contains best practices on privacy settings and password selection along with security tips aimed to help social media users protect their personal information and avoid fraud.

The Benefits to Advisors

Russell Dunkin, a wealth advisor in Wheeling, W.V., told me in an email that in his use of social media over the past four years, he’s found Facebook to be “extremely valuable” in deepening his existing client relationships and “accelerating relationships that are just forming.”