It is official, social media madness has taken over. Do you feel like you are behind the times because you do not have a social media presence? Not sure how to approach this hot topic? Social media sites are useful business tools for investment advisers. However, you have to decide how much time you want to devote to social media and what the compliance concerns are surrounding its use.
So far the only guidance has come from FINRA, but the US Securities and Exchange Commission (“SEC”) has done sweeps and definitely has this on their radar screen. While the SEC has not released any specific guidance on this topic, there are existing rules that investment advisers should be familiar with when using social media. Rule206(4) of the Investment Advisers Act of 1940 considers any information posted online by an adviser to be an advertisement. This means that all profiles and posts to social media sites would be considered advertisements that are subject to all the advertising regulations. This includes all the disclosure requirements, especially as it relates to performance.
Rule206(4)-1 of the Investment Advisers Act of 1940 prohibits testimonials so advisers have to be careful about allowing comments on their sites by clients. LinkedIn allows users to make recommendations. While these recommendations are good for promoting your business, they are considered testimonials by the SEC and are prohibited. The “Like” functionality on Facebook is another issue. The SEC will probably consider this to be a testimonial as well so this feature should be prohibited.
Remember, record retention is part of the SEC requirements and it can be quite challenging to capture all the changes that have to be archived from social media sites. This includes the instant messenger features as well as emails to and from these social media sites. You need to have a way to capture it and maintain it for not less than five years from the end of the fiscal year during which the “adviser last published or distributed the advertisement”.
While this is by no means a complete listing of everything you should take into consideration before joining the social media frenzy, it’s a good starting point.
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Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.