SEC urges tighter management of advisor social media
The Securities Exchange Commission recently released a National Examination Risk Alert (Volume II, Issue 1) designed to draw attention to social media compliance gaps observed during recent advisor examinations.
"The use of social media by the financial services industry is rapidly accelerating," the alert noted. "In growing numbers, registered investment advisors (RIAs) are using social media to communicate with existing and potential clients, promote services, educate investors, and recruit new employees."
As a result, according to the SEC, firms' 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.
The alert goes on to list 10 factors firms may wish to consider when assessing their social media compliance programs. Some of the factors include usage guidelines, content standards, frequency of monitoring and content approval.
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.
Another advisor implication involves customer testimonials. Under the Investment Advisor Act, advisors are prohibiting 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.
In the alert, the SEC took a firm line on this issue. "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."
Source: National Ethics Association
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