8 Things Financial Advisors Should Know About Social Media Compliance
February 27, 2013 6:01 PM
8 Things Financial Advisors Should Know About Social Media Compliance
Many financial advisors hesitate to use social media because they are concerned about compliance. This is certainly understandable, but current rules allow plenty of flexibility to use social media effectively. In this slideshow, Robert Sofia, co-founder and COO of Platinum Advisor Strategies, attempts to demystify social media compliance by focusing on 8 critical areas.
1) Follow the Rules of Your Firm
Regardless of what were publishing here, we are compelled to mention that you must ultimately adhere to the guidelines set by your firm. If your supervisor says you arent allowed to use Facebook, sorry, you cant use Facebook. The good news is that you have someone looking out for you. Whether you understand their reasons or not, they have an obligation to set guidelines and monitor your social media activity. Being familiar with your firms policies and following them closely is in your best interests.
2) There Are No "Social Media Rules"
Most advisors are shocked to hear this, but the fact is that regulatory bodies like FINRA and SIPC have not written any new rules to govern social media. What they have done is apply existing rules to this new technology. FINRA Regulatory Notices 10-06 and 11-39 as well as SEC Risk Alert dated January 4, 2012 are helpful in interpreting these rules, but it is important to use common sense. To quote the SEC, Firms use of social media must comply with various provisions of the federal securities laws, including, but not limited to, the antifraud provisions, compliance provisions, and recordkeeping provisions. Translation: Dont do anything on social media that you wouldnt do outside of social media.
3) Personal vs. Corporate
Unless your firm says otherwise, your personal social media profiles do not have to be monitored and archived. What determines whether your profile is personal or business? If you discuss business matters, its business. If you want to be friends with your clients on Facebook, thats great. But if they want to talk business, have them call you at your office or send you a message using your compliance approved e-mail address.
4) Consider Suitability
FINRA rule 2111 requires advisors to have a reasonable basis to believe that a recommendation is suitable for a particular customer based on that customer's investment profile. Because it is impossible to know the full investment profile of everyone in your social media audience, it is inappropriate to make specific investment recommendations on these tools. Think of your social media audience like a room full of people at a seminar or client event. Dont say anything on social media that you wouldnt say to that group. This is one area that could get you in big trouble. To protect yourself, you may want to add a disclaimer to your social media profiles that tells everyone that nothing you say should be construed as investment advice.
5) Recordkeeping Requirements
According to FINRAs interpretation of NASD Rules 17 and 3110, as well as the Securities Exchange act of 1934, the obligations of a firm to keep records of communications made through social media depend on whether the content of the communication constitutes a business communication. Thankfully, there are plenty of new tools that have emerged to assist you with meeting this recordkeeping requirement. If you are a compliance officer looking for an effective tool to use, you may want to check out SocialWare, Actiance, Smarsh, or Arcovi.
6) Static Content vs. Online Electronic Forum
Content that does not change regularly, such as a LinkedIn profile, a Twitter background, or a Facebook page are considered to be static and are treated like advertising, meaning they need to be approved by a principal in advance. However, things like tweets and status updates do not require pre-approval. Per regulatory notice 11-39: FINRA considers unscripted participation in an interactive electronic forum to come within the definition of public appearance under NASD Rule 2210. Public appearances do not require prior approval by a registered principal. So tweet to your little hearts content as long as your principal says its okay, of course.
7) LinkedIn Endorsements and the Facebook Like Button
This is where things get a little tricky. Ultimately, youll need to defer to the rules of your firm on this one, but Ill share what the regulators have published. According to the SEC, Third-party use of the like feature on an investment advisers social media site could be deemed to be a testimonial if it is an explicit or implicit statement of a client's or clients' experience with an investment adviser or IAR.
To illustrate: If the public is invited to like your biography posted on a social media site, this could be viewed as a type of testimonial prohibited by rule 206(4)-1(a)(1). On the other hand, if they merely like a picture you posted, it may not be considered an implicit testimonial. So what should you do? Disabling the endorsements section of your LinkedIn profile is probably a good idea. On Facebook, avoid posting anything that could be deemed as a testimonial if someone likes it.
To illustrate: If the public is invited to like your biography posted on a social media site, this could be viewed as a type of testimonial prohibited by rule 206(4)-1(a)(1). On the other hand, if they merely like a picture you posted, it may not be considered an implicit testimonial. So what should you do? Disabling the endorsements section of your LinkedIn profile is probably a good idea. On Facebook, avoid posting anything that could be deemed as a testimonial if someone likes it.
8) If Your Clients Want to Recommend You, Let Them Do It On Their Own Site
As we just reviewed, testimonials are prohibited from appearing on any website you control. That being said, your friends and clients have the constitutional right to say anything they wish on their own social media sites. So if one of your clients is bummed that they cant put a testimonial on your Facebook page, thank them for their kindness and remind them that they can feel free to add it to their personal page.
Still Uncertain?
In the end, I hope you can see that social media compliance isnt as scary as some people make it out to be. Simply follow the rules of your firm, use common sense, and avoid doing anything you wouldnt do in person.
For more information, you may want to check our sources:
FINRA NOTICE 11-39
FINRA NOTICE 10-06
SEC RISK ALERT 1-4-12
For more information, you may want to check our sources:
FINRA NOTICE 11-39
FINRA NOTICE 10-06
SEC RISK ALERT 1-4-12
