Last week, the Securities and Exchange Commission (SEC) issued a widely-publicized release announcing the proposal of new regulatory rules that would apply to registered investment adviser (RIA) firms registered at the federal level. Previously, we discussed how the proposal makes it evident that the SEC is reviewing the outsourced RIA Chief Compliance Officer (CCO) model. In this post, we take a closer look at the SEC’s proposed changes to the Part 1 of the Form ADV as it relates to investment adviser social media information.
Page 17 of the full proposed rule release (file number S7-09-15 published in the Federal Register) states the following:
Item 1.I of Part 1A of Form ADV currently asks whether an adviser has one or more websites, and Section 1.I. of Schedule D requests the website address. We propose to amend Item 1.I. to ask whether the adviser has one or more websites or websites for social media platforms, such as Twitter, Facebook and LinkedIn, and request the social media addresses in addition to the adviser’s website address in Section 1.I. of Schedule D.28 Along with websites, advisers increasingly utilize social media to communicate and it would be useful for this information to be available to us and the general public. Our staff could use this information to help prepare for examinations of investment advisers and compare information that advisers disseminate across different social media platforms as well as identifying and monitoring new platforms. Current and prospective clients could use this information to learn more about advisers and make more informed decisions regarding the selection of advisers.
In its proposal, the SEC is seeking this amendment in order to help accomplish the following:
- Allow staff of the SEC Office of Compliance Inspections and Examinations (SEC) to more easily prepare for RIA audits by having this information readily available for review
- Be able to better identify social media trends and the emergence of new social media platforms that may need to be monitored
- Allow current and prospective clients to more easily find firms on social media in order to be able to more easily compare firms
In its current form, the SEC seems to only be asking a federally-registered RIA firm to disclose the social media addresses for platforms such as Twitter, Facebook, and LinkedIn at the firm level. However, the proposal does raise the following question for public comment:
Is there additional social media information that we should collect? Should we ask advisers whether they permit employees to have social media accounts associated with the advisers’ business? And, if so, should we ask advisers to identify the number or percentage of employees that have those accounts? How burdensome would it be for advisers to report that information?
Thus, it appears that the SEC would like to get a better handle on which firms are allowing individual advisers to utilize social media accounts while representing the firm. Generally, from an RIA compliance risk standpoint, firms that allow employees to utilize social media accounts for business purposes need to be very diligent when it comes to the approval, monitoring, and archiving of individual representatives’ social media content. Given that social media is treated just like any other form of advertising, it’s vital in such a scenario that the firm is not only archiving its corporate social media account, but also any employees utilizing social media when conducting firm business. As RIA compliance consultants, we find that most investment advisory firms today are not allowing employees to operate individual social media accounts on behalf of the firm, however there are a number of firms that do allow this practice.
Previously, in March 2014, the SEC issued guidance as it relates to investment adviser use of social media. Social media usage remains a hot compliance topic in the investment adviser regulatory world. Yet, more and more RIA firms are beginning to successfully utilize social media as discussed in our RIA Firm’s Starter Guide to Twitter and Social Media. However, in such circumstances, it’s important that firms implement the proper compliance systems and understand the relevant rules before embarking down the social media path in order to ensure that the advisory firm stays compliant with all relevant state and federal regulations.