Social media in SEC's crosshairs

Advisers should develop a social media strategy, bearing in mind the SEC's guidance

Sep 11, 2016 @ 12:01 am

The Securities and Exchange Commission has issued further guidance on the use of social media by investment advisers. As reported by InvestmentNews on Sept. 6, the guidance came with the release of the final Form ADV and Investment Advisers Act rules, and it includes a mix of good and not-so-good news.

The good news: It clarifies some issues that have concerned advisers and limited their use of social media. The not-so-good news: It requires more record keeping and reporting.

The Form ADV currently asks advisers whether they have one or more websites and requests the address of each website. The revised form will ask if an adviser has one or more accounts on social media platforms, such as Facebook, Twitter or LinkedIn, and will request profile information for each social media account.

Fair warning: In its release, the SEC noted that its staff might use the information to help prepare for examinations of investment advisers. At the least, the SEC staff might use the information to compare the information that advisers disseminate across the different platforms, and to identify and monitor new platforms. The implication — sloppy use of social media, such as having inconsistent information on the different sites — might trigger an SEC audit.

As for the clarification that the required reporting is limited to public social media accounts where the adviser controls the content and which are used to promote the adviser's business, it does not include information posted on an adviser's internal social media platform.

However, if the information on an adviser's public platform becomes obsolete or inaccurate and is updated by the adviser, the adviser must revise the ADV form with the SEC. The adviser also must keep records of their use of social media.


Earlier, the SEC had clarified the regulations concerning the use of testimonials on advisers' social media platforms, saying that the publication of “all of the testimonials” about the advisers from independent, third-party social media sites would not breach the testimonial rule. The rule was designed to prohibit fraudulent or deceptive use of testimonials through the publication of only favorable testimonials.

The use of social media has become invaluable for businesses of all kinds, including investment advisers, to find new clients and keep existing clients up to date. Communication through social media can be especially valuable for financial advisers to build client relationships by offering them materials that educate them about the economy and the markets. It has become especially valuable to reach younger investors.

(Related read: Financial advisers push boundaries of social media)

The key for advisers is to ensure their social media efforts are aimed at providing unbiased information and are not promotional. Credibility is key to keeping current clients and gaining new clients; nothing will destroy credibility more quickly than drawing the attention of the SEC, and the publicity that comes with that.

If they haven't already done so, advisers should develop a social media strategy, bearing in mind the SEC's guidance on the use of such platforms. The strategy should include specific goals, a plan for implementing the strategy and a way to carefully monitor what is posted online.

Those firms that already have social media plans should review them in light of the SEC's new rules, paying particular attention to consistency of information across platforms.

Most likely, the responsibility for monitoring posts on social media will fall on compliance officers. They should review every proposed post to a company social media outlet before it is posted. A poorly worded post could draw the attention of the SEC. As noted above, inconsistency of messages across various media is one way of attracting SEC notice.

Social media has become a powerful marketing vehicle and provides great opportunity for advisory firms, but carelessly used it can cause great harm and attract unwanted attention from regulators.


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