So Apple announced its new iPhone 6 etc. about an hour ago — it’s probably old news by the time this post hits the wire, which is kind of my point. I am not sure what you will do about the new Apple products, but I do know that social media and its use in an advisory business is still one of the hottest compliance tickets in town. I have blogged about this before, but here is a refresher.
It’s always good to start with the basics: Advisers must contend with federal securities laws, including Rule 206(4)-1 of the Advisers Act, which generally prohibits false or misleading advertisements by investment advisers. The rule applies no matter in what medium the communication takes place, and postings on LinkedIn, Twitter, Facebook, Google+ etc. are no exception.
Due to the fluidity of the medium, SEC guidance at any given time may lag behind and not address specific newly emerging issues you face in your practice. There are, however, established trends and do’s and don’ts that you should have in your back pocket and that will get you a long way. My five key tips:
- Review your social media policy periodically and monitor, monitor, monitor: I just assumed that you do have a policy in place already. It is hard to imagine that you don’t. With all things digital evolving at the speed of lightning, you should review your policies and procedures frequently to adjust to new realities. Your activities should particularly include regular monitoring of the social media activities of your employees and any third parties retained to act on your behalf. I have been doing this randomly for clients, and was truly amazed by what I found.
- Assume all social media is advertising: While you may debate with yourself whether or not something is indeed “advertising,” when in doubt, assume that all of your social media activity must comply with Rule 206(4)-1. That means that you must disclose all material, relevant facts and avoid misleading statements. Hence, no cherry-picking. For what not to do, please refer to SEC action earlier this year involving a NY based money manager, Twitter, and a large fine.
- Avoid testimonials: SEC rules prohibit advisers from using testimonials. In that spirit, an adviser should not invite clients to post recommendations on its social media pages. It should also avoid unsolicited endorsement of an adviser’s performance or its services. For LinkedIn, this means turning off the “I want to be endorsed” feature in your profile. You should certainly not accept any free-form recommendations that clients may submit — LinkedIn for example requires your approval before they are posted. As to “likes” on Facebook and LinkedIn, and “favorites” on Twitter, use your judgment, which is common sense based. Make sure you don’t invite commentary. Third-party review sites, such as Yelp, are in the clear, as long as you have no influence over the selection of the commentary that is made available and all commentary, good or bad, is posted.
- Keep accurate records: FINRA and the SEC have both been known to conduct social media sweeps. Solid record keeping starting with effective policies and procedures helps evidence compliance. As you are aware, the Advisers Act requires you to retain advertisements reaching 10 or more people for at least 5 years.
- Limit employee use: Adopt a policy and make sure every employee understands the rules. This also relates to references to your firm on employee’s personal pages. Many firms restrict social media use to a select group of employee or require that all posts be vetted before they “go live,” both of which are good practices. Whatever your policies are, monitor. See my point above.
People who follow me know that I am the biggest fan of social media out there. For advisory firms, it can be a terrific way of reaching the desired audience with whatever message you would like to send. The message just needs to be curated to make sure it complies with the Advisers Act. For ease of reference, here are links to the 2012 National Examination Risk Alert and Guidance No. 2014-4 on the Testimonial Rule and Social Media. They are well-written and useful in their practicality. I will keep you posted as more clarification emerges.