Disclaimer: I am not a lawyer; I don't even play one on TV. So suffice it to say that the material available in this article is for informational purposes only and not for the purpose of providing legal advice.
This blog post is the first installment of a three-part series on social media compliance in the financial services industry! Stay tuned for the rest over the next few weeks.
When I started working in the financial services industry, I was astounded at how many rules and regulations there are, particularly in the mutual fund space. Want to discuss a fund with a retail audience? You'd better be prepared to send it to three different compliance departments, use point 8 font or greater on everything, and never use the words is, are, always, never, or solutions.
Don't get me wrong, I understand completely why these regulations are there: protecting the investors who use our products and services is extremely important. But there's no doubt that the regulatory environment presents singular challenges for financial services professionals who are looking to expand their reach through content marketing and social media.
That said, I firmly believe that the use of social media is a worthwhile activity for advisors. Because social media is an excellent and cheap (even free, in some cases!) way to build your brand and grow your business, it is worth investing the time and effort into your company's compliance functions in order to leverage the online tools. Moreover, a recent Putnam study found that a record 79% of advisors used social media to grow their business, with an average asset gain of $4.6 million. Clearly, advisors are making it work -- to great effect.
I would also argue that like most aspects of practice management, compliance gets easier with time. I know we at BPV have certainly built out a lot of systems in order to facilitate the compliance process, and it has paid dividends in our ability to communicate more efficiently and effectively with our target audiences.
The Basics: What does the Law Say?
Interestingly, many of the laws governing social media are the same ones that govern broader communication, which were part of the SEC's Investment Advisors Act of 1940. Obviously, the internet was a science fiction fantasy back then, but even since that time, FINRA and the SEC have been regrettably unclear about specific social media policies.
Luckily, we do have some guidance on how social media fits into the broader communication rules. In 2012, the SEC published the Risk Alert on Investment Adviser Use of Social Media, which helps explain which policies and procedures that firms engaging in social media activities should develop. Additionally, the March 2014 Guidance on the Testimonial Rule and Social Media deals more specifically with third party commentary.
It's also important to note that since the Dodd-Frank Act raised the asset under management threshold from $25 million to $100 million, the SEC has jurisdiction over large advisory firms while states oversee most small and mid-sized advisors. However, the policies governing communication are extremely similar, so regardless of your size, these guidelines should hold.
So what are the big concerns with regards to social media compliance? Well, there are a few big ones to worry about:
- Company procedures
Over the next few weeks, we'll be addressing each of these topics in depth. But for now, advertising is a great starting point because the laws regulating advertising certainly impact the rest of the compliance issues listed above.
Rule 206(4)-1 is the part of the Investment Advisers Act governs the issuance of advertising materials for advisors. The Act states that if the purpose of a written communication is to offer additional advisory services or attract new clients, it may be viewed by the SEC as an advertisement. In addition to regulating advertising in general, rule 206(4)-1(a)(5) of the Investment Advisers Act bars any false or misleading advertisement in any way.
This presents a quandary for social media usage. Unlike brochures, emails, and print advertising, social media can be a gray area under this rule. For example, if you try and post recent performance data (and I highly recommend that you don't), that's pretty clearly an advertisement. But what if you share an interesting article on the economy? What about lighthearted pictures from around the office or your recent vacation? Where do you draw the line?
Well, arguably, since social media profiles are largely public information, if you knowingly publish information about your company, it constitutes advertising. This is not particularly convenient from a publishing standpoint, but also leads to a good rule of thumb: if you wouldn't put it in an advertisement without disclaimers, don't put it on social media. This also means that performance information, stock picks, and investment advice don't make particularly good social media topics. However, if your content is generally not investment related and doesn't talk directly about your company or services, you may find that the compliance scrutiny is minimal.
Advertising Best Practices
- Don't publish performance data or specific stock or investment recommendations
- Stay away from direct references to your service offerings
- Cross check your social media profile against your ADV, advisory contract, and website -- they should be consistent in content and tone
- Critically scrutinize your social media accounts to make sure they're not false or misleading in any way
- Consider adding a disclaimer informing all readers that all content, likes and followers of the profile should not be considered as advertisements
So that's the first of the four big issues in social media compliance for financial advisors. Stay tuned for a deep dive on the other three issues-testimonials, company procedures, and recordkeeping -- in the weeks to come!
This piece was originally published on backporchvista.com.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.