While a social media presence can be effective for both adviser advertising and investor research, advisers must understand and be aware of the compliance complications that can arise when social media is not managed properly. This blog post helps RIA firms navigate the regulatory challenges and requirements that advisers face when utilizing social media platforms as a method of advertising.
The Written Rules
Social Media falls under the SEC’s advertising rule, Rule 206(4)-1 of the Investment Advisers Act of 1940. Rule 206(4)-1(b) states that,
The term advertisement shall include any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, which offers (1) any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (3) any other investment advisory service with regard to securities.
The rule prohibits an adviser’s use of testimonials, charts and graphs without presenting all limitations, and untrue or misleading statement.
Form ADV Filing Requirements
Firms must disclose all website addresses and social media accounts in Item 1.I of Part 1A in which the adviser controls the content for all publicly available social media platforms (i.e. LinkedIn, Twitter, Facebook, etc). The firm is not required to disclose personal accounts of individual staff members or the addresses of accounts in which an unaffiliated third party controls the content.
Social Media Policy
An advisory firm should have social media policy that clearly addresses the proper use of each social media platform. This policy should be consistent with the advertising policies and procedures of the firm.
Social Media Testimonials
According to guidance published by the SEC, when referring to the term “testimonial”, “…staff has consistently interpreted that term to include a ‘statement of a client’s experience with, or endorsement of, an investment adviser.'”
In regards to social media, advisers should be cautious of LinkedIn endorsements as these are statements of client’s experience. RIA Firms should opt out of endorsements on their LinkedIn and disable comments across all platforms to prevent any unsolicited posts from clients that may not adhere to this rule. Furthermore, a firm should not create its own “fan” or “community page”. In addition, if the firm’s page has contacts or friends, the contacts should not be listed or grouped as current or past clients and should not create any type of inference that these friends have had a positive experience with the firm.
Third Party Commentary
In order to help investors perform research and due-diligence on investment firms, third-party commentary that is unsolicited by and unaffiliated with the RIA firm may be permitted with a few exceptions. First, an investment adviser may not invite clients to post commentary on public sites. If an independent social media site includes commentary of an investment adviser, the adviser must post all of the unedited comments. Furthermore, the commentary must not be restricted, have no affiliation with the investment adviser, and the reader should be able to view all comments on a real-time basis. If posting this commentary on social media, the adviser is allowed provide a way for the user to sort the commentary, however, cannot sort the commentary themselves i.e. place all positive comments at the top.
Misleading Statements
Choose the words in your social media posts carefully. Posts should not include any subjective language such as “Best firm in the Midwest.” If posting about particular people at your firm, be sure that their titles or professional designations are consistent with those listed on your firm’s Form ADV Part 2 brochure. As always, exercise extreme caution when posting any performance-related information. If working with an outside firm or consultant to create your posts, be sure that they are fully aware of the advertising standards RIA firms are held to and avoid posting any exaggerated, subjective, or misleading language or improper third-party commentary.
Documentation
Document and archive any communication via social media channels. This includes all posts, direct messages, or mass communication.