Social Media Policy Is a Must for Investment Advisors to Avoid Trouble

| November 15, 2012 | Be first to comment

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(This post was published earlier this year, but is still very relevant for investment advisors considering a social media program.)

“Social media is landscape-shifting” states the U.S. Securities & Exchange Commission in a National Examination Risk Alert, titled “Investment Adviser Use of Social Media,” that was issued earlier this month. That phrase, although kind of odd, does sum up what is happening. 

“It converts the traditional two-party, adviser-to-client communication into an interactive, multi-party dialogue among advisers, clients, and prospects, within an open architecture accessible to third-party observers.”

Change is upon us. Yet it is hard for most financial professionals to understand because of the threat involved:  social media must be used in a regulatorily compliant manner… or else. So, let’s step beyond the fear of an enforcement action to dissect one element of the Alert.

Social Media Policy

The Alert was written after the staff of the Office of Compliance Inspections and Examinations (OSCIE) identified registered investment advisers of various sizes and reviewed whether or not they were using social media in a way that was compliant with federal securities laws. One thing that quickly became apparent was that few had a social media policy. Overlapping procedures regarding how to properly employ advertisements, client communications, and electronic communications were in place, but they were not specific to the use of social media. In addition, OSCIE found that the following essential elements were frequently missing:

  • Guidance about which social media sites were permitted or prohibited;
  • How social media could be used to solicit new clients, including the prohibition of specific functions on social media sites;
  • Content standards that prevent a registered investment advisor or associated person from violating fiduciary standards or other regulatory issues;
  • The approval process including compliance oversight;
  • Prohibition of conducting firm business on personal social media profiles; and
  • Issues of information security.

This is a “non-exhaustive list,” in the words of the SEC.

Think It Through First

Investment advisors who are regulated by the SEC need to take this seriously. Even if you are a smaller firm or a solo practitioner, about to switch to state regulation, you still need to do this right. 

Once your social media policy is in place, you’re not done. As the landscape shifts, your policy will require re-examination. It’s just the first step in thinking through the use of social media to avoid the hammer coming down on you. 


Need help with your program? Contact us. We can help. 

SCOTT PETERSON, co-founder of Relay Station Social Media LLC, has over a decade of experience in market, securities, and regulatory communications. His firm provides integrated Internet marketing, compliance training, and more to a wide range of organizations.

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