Advisors are jumping into social media to communicate with clients, generate new business and even service clients. However, many chief compliance officers ("CCOs") are confused on how to proceed.
Social media is an incredibly powerful medium to efficiently build brand awareness, demonstrate knowledge and expertise among your audience, communicate with prospective clients, deepen relationships with and serve your existing clients. It can become a powerful tool in your content marketing arsenal if your firm commits to a long term, strategic approach to social media engagement .
This blog post focuses on how CCOs can properly implement social media activity within their RIA firm. For guidance on specific social sites, see our presentation, "Confident and Compliant Social Media for Advisors" .
RIA Social Media Compliance In a Nutshell
CCOs should establish usage guidelines that are communicated through a formal social media policy. This policy will define who within your firm can use social media, which sites are allowed and what your expectations are with respect to their use. Be sure to include IARs, solicitors and any third-parties that are subject to your policies and procedures.
When determining which social media sites may be used, some factors to consider include:
CCOs are responsible for providing guidance on appropriate and inappropriate social media usage. One way of doing so is to establish written content standards that consider the risks that certain activities invite to your firm. These standards should specifically address the use of performance results, security recommendations or specific references to the services you provide to advisory clients.
Note: Because of the accompanying risks, most RIAs do not allow content related to security recommendations or references to specific services.
Pre-approval is not a requirement. If you elect to not pre-approve social media activity, you should be prepared to articulate your rationale for why you believe "after-the-fact" social media activity review is sufficient for your circumstances.
Most CCOs allow third-parties to post content on their firm's social sites. Third-party content may include: articles, forward links or other messages.
To be somewhat more conservative, some firms limit third-party interactions to "one way postings", where IARs post on the firm's social media sites but do not interact with or respond to third-parties. Even more conservative firms will limit third-party postings to authorized users only and/or prohibit posts by the general public.
Which approach to take comes down to a business decision on your part. If your firm does allow third-party content, just be sure that you have procedures in place to monitor these posts for inappropriate content (e.g. testimonials).
Like all other advertising activities, CCOs are responsible for effectively monitoring communications that are available to the general public. To demonstrate this ability to monitor, we strongly encourage RIAs to use a social media archiving solution that allows the CCO to not only abide by books and records requirements (see below) but also monitor activity. These monitoring procedures should be laid out in your social media policy.
If your firm is a hybrid RIA (advisory persons are also associated with a broker-dealer) you will also have to follow the technology and process requirements set forth by the broker-dealer. Pure RIAs are left with the decision to implement monitoring and archiving software or have a process to enable the firm to effectively meet the advertising, supervision and records requirements. A smaller advisor with only intermittent postings may opt for a well-defined workflow process to review and archive social media content. A firm with more frequent activity or several posters, will likely find that the opportunity cost of their time is higher than the cost of social media surveillance and archiving tools.
CCOs are obligated to maintain records of any social media activity that may be deemed a "required record” for five years following the last year it was used. Rather than making this determination on a case by case basis, most RIAs have adopted an overarching policy of archiving all social media communications.
IARs may not alter any settings within social media sites that interfere with or preclude your firm from archiving communications. In cooperation with these policies, IARs may not destroy or alter any communications after they have been posted on a social media site (i.e. an attempt to alter archives)
Through the Regulator's Eyes
The most important thing to remember is that ALL social media is within the scope of "advertising" and subject to all aspects of the "advertising rule" that defines your responsibilities as an RIA. (Yes, this includes LinkedIn profiles.)
Social media is a very high priority for both SEC and state regulators today. While they are continuously trying to keep up with the added complexities that accompany these new tools (See: SEC National Examination Risk Alert, "Investment Adviser Use of Social Media" ), it is probably fair to say that social media regulatory oversight is here to stay and will continue to evolve.
To get a sense of one state regulator's findings during a social media sweep in 2012, see this deficiency letter that was sent to a state-regulated RIA in 2012.
CCO Best Practices for Social Media Compliance