Social Media and the Investment Adviser

More and more brokers and investment advisers are becoming familiar with the applicable social media regulations, including those described in FINRA Regulatory Notice 10-06, to put into place procedures that permit the wide use of social media for marketing purposes. These social media sites are proving an invaluable way to create and build client relationships, referral networks and other marketing opportunities. While this guidance was welcomed by firms, much of FINRA’s guidance is proving incomplete, as broker-dealers struggle to find ways, for example, to implement procedures to comply with FINRA’s record-keeping and other requirements.

Subject firms wishing to employ greater social media need to make sure that they follow FINRA’s requirements and those of the Exchange Act, the Investment Adviser’s Act and applicable state law. The most important factor is, of course, full, accurate, fair, complete and honest disclosures particularly on those pages that are permanent as opposed to transient messages. As FINRA made clear, all social media records, even Tweets and Facebook wall postings, must be maintained by the firm as part of their supervision. Additionally, a firm needs to set a written social media policy and follow the policy thoroughly.

From a compliance standpoint, for entities subject to FINRA rules, it is important to realize that blog posts, websites, banner ads, bulletin boards and static content on social media sites are considered advertisements under Rule 2210 and thus subject to the detailed requirements of that rule, including principal review or approval prior to posting for publication. This includes profile, background and wall information.

Interactive content, such as real time active communications and posts on Twitter and Facebook, are considered “interactive electronic forums” that fall under the definition of “public appearance” in Rule 2010 and are thus subject to a different set of requirements, not including pre-use principal approval. Nevertheless, firms must supervise such communications and may adopt supervisory procedures similar to post-use review (including some sort of search or word-based electronic mining).

Finally, user content submitted by customers or other third parties are generally not considered communications with the public because they are not generated by the firm and thus are not subject to principal approval or filing requirements. Nevertheless, the content may become attributable to the firm if the firm paid for the content or in any way implicitly or explicitly endorses it. In order to avoid supervising the content, the firm must post a prominent disclaimer informing customers or others visiting their sites that the third-party content does not reflect the view of the firm and is not being reviewed for completeness or accuracy.

From a marketing, rather than a compliance standpoint, it is also important to have a well developed database of connections including clients, potential clients and other industry contacts. This will allow the adviser to clearly define markets that could be targeted by social media. Such a database could, for example, classify connections by their industry and other demographics. The adviser could then use targeted research or regular status updates to keep its name before others within the network.

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

Contact Information