The Securities and Exchange Commission is taking a closer look at advisers' use of social media by making their activity part of their annual disclosures to the agency.
In a recently released final rule, the SEC said it is adding to Form ADV a section that asks advisers to list the addresses of their pages on Twitter, Facebook, LinkedIn and other sites. Previously, the document only asked for the address of an adviser's own website.
“Our staff may use this information to help prepare for examinations of investment advisers and compare information that advisers disseminate across different social media platforms, as well as to identify and monitor new platforms,” the
rule states.
The rule also amends the ADV to require more data from advisers about their separately managed accounts and a longer list of their branch offices.
Incorporating social media on the ADV, the foundation of the SEC's regulation of investment advisers, is the latest development in the SEC's effort to get a handle on the rapidly growing area.
In 2012, the SEC
issued a risk alert indicating that advisers must retain records of their social media communications and warned that advisers' reference to a “like” feature on a third-party website could be deemed a testimonial.
In 2014, the SEC Division of Investment Management
issued further guidance on how the agency would interpret the testimonial rule in the context of social media.
The Financial Industry Regulatory Authority Inc., the broker-dealer self-regulatory organization, put out similar social media guidance in a
2010 regulatory notice and a follow-up
notice in 2011.
With the new ADV rule, the SEC is formalizing the attention it's paying to social media.
“It's a logical next step,” said David Tittsworth, counsel at Ropes & Gray. “This is a fairly modest reporting requirement.”
With social media addresses appearing on an ADV, it will be easier for the SEC to locate an adviser's online activity.
The agency “may have some kind of internal system” for assessing information posted on social media and using it to determine which advisers pose the most risk, said Kevin Scanlan, a partner at Kramer Levin Naftalis & Frankel.
“If they see something they don't like on a social media page, they may put you higher on the list for inspection,” Mr. Scanlan said.
The new rule is a reminder to advisers that the story of their firm should not vary based on where it's being told.
“It will be even more critical that whatever information advisers are putting in their contracts, in their Form ADV, in their marketing materials are not inconsistent with what they're saying on social media,” said Karen Barr, president and chief executive of the Investment Adviser Association.
The SEC is “going to follow up, if there are discrepancies,” she said.
The agency itself is trying to be consistent in how it regulates advertising regardless of the medium.
“With the evolution of social media, they want to make sure that the same rules that apply to a pitch book or marketing also apply online,” Mr. Scanlan said.
The agency also is showing that it's keeping up with online developments.
“This is a recognition of how prevalent these social media sites are,” Mr. Tittsworth said of the new SEC rule. “Younger investors are using social media all the time. This reflects the SEC's awareness of those trends.”
