Investment Advisers and Social Media

As the use of social media becomes more prevalent and popular, businesses and financial institutions have begun to utilize the new methods of communication that social media can provide. Many businesses already maintain blogs or interactive accounts like Twitter, Facebook, and Instagram as a method of marketing and interacting with clients or prospective customers. However, social media is a relatively new and constantly changing technology that can create unique and unforeseen risks to a businesses image and regulatory compliance policies. These risks are particularly acute for registered investment advisers.

In the broker-dealer world, FINRA has already adopted rules and issued regulatory notices designed to protect investors from false or misleading claims and representations and guide member firms on how to appropriately monitor their social media participation. Although not strictly applicable to pure RIAs, these rules should be viewed as best practices:

  • FINRA Rule 2210 and NASD Rule 3010 govern the supervision of a firm’s social media communications;
  • FINRA Rule 2111 requires that social media communications, if recommending a security, must be considered suitable for the targeted investors; and
  • Record keeping of all social media communications is required under FINRA Rule 4510.

Before your RIA establishes a social media policy, or even if one is already in place, there are numerous factors to consider when creating, revising, or updating your social media policies. Below are a few tips to help minimize the potential risks associated with using social media in connection with your business.

– Remember that social media should be treated as advertising – so keep copies as you would all other advertising.
– Determine which type of material is appropriate and which material is prohibited, like never posting false or misleading information or client testimonials.
– Have a risk management program in place to monitor, manage, assess, and review your firm’s use of social media and its effectiveness.
– Establish policies and procedures for the use of social media and, if necessary, how to manage and address risks posed by interactions from other social media users.
– Create training programs designed to educate and inform employees on how and when to use social media.
– Carefully manage and monitor third-party relationships and their respective use of social media.
– Enact policies and procedures designed to make sure sensitive, private, or confidential information is not exposed.
– Implement procedures allowing for the monitoring and record keeping of all information posted on social media.
– Maintain audit and compliance functions to ensure adequate compliance with internal policies and state and federal rules and regulations.

Other factors to consider when drafting a social media policy are the size of the member firm, its complexity, the scope of its social media activity, the types of content it posts on social media, and the laws and regulations required by the appropriate regulatory bodies (FINRA, SEC, NYSE, or state regulator). When developing a social media policy, it is important to remember that social media is a form of advertising and should be treated as such.

While these suggestions may help manage the risks presented by the use of social media, they are by no means exhaustive or comprehensive. Each RIA should develop policies and procedures specific to their circumstances to ensure proper legal compliance before your firm or employees utilize social media.

Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our attorneys can help assist financial service providers in complying with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.

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