What are your thoughts on social media—friend or foe? While social media makes our jobs easier, these new technology platforms do not come without hiccups and headaches. And, wouldn't you know it, the SEC has taken notice as it pertains to advisors.
My friend at the National Ethics Association, Harry Lew, stays on top of compliance issues and sends me information when changes are afoot. Recently, he sent me a notice that the SEC released a National Examination Risk Alert (Volume II, Issue 1) "designed to draw attention to social media compliance gaps observed during recent advisor examinations."
As the alert states: "The use of social media by the financial services industry is rapidly accelerating. In growing numbers, registered investment advisors are using social media to communicate with existing and potential clients, promote services, educate investors, and recruit new employees."
OK, so far, so good. But there's a catch, right? Why, of course. As my friend Harry Lew writes: "Use of social media must comply with federal securities law, including antifraud, compliance and recordkeeping provisions. However, recent SEC reviews revealed overlapping procedures regarding advertisements, client communications and electronic communications. These procedures may or may not specifically target social media, thereby causing confusion."
Have you developed a social media program in your practice? Whether or not you have, you should be aware of the key points raised in the alert, including, usage guidelines, content standards, frequency of monitoring and content approval.
As Lew points out: "Although the SEC alert focuses on RIA firms, investment advisor representatives can reasonably expect greater scrutiny as RIAs ramp up their compliance efforts with social media."
The alert also pays special attention to "customer testimonials." As Lew explains: "Under the Investment Advisor Act, advisors are prohibited from using testimonials in their advertising. However, on social media platforms, 'liking' another person's posts is a common practice. So it's likely an advisor's posts will attract 'likes,' potentially creating a violation of the Investment Advisor Act."
As the alert states: "Third-party use of the 'like' feature on an investment advisor's social media site could be deemed to be a testimonial if it is an explicit or implicit statement of a client's or clients' experience with an investment advisor or IAR," it said. "If for example, the public is invited to 'like' an IAR's biography posted on a social media site, that election could be viewed as a type of [prohibited] testimonial."
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