By bbr

by Kelly Lucas, marketing and social media manager

Not long ago we wrote a post on FINRA’s social media policies for those in financial services. The financial services industry has always had pretty specific rules about testimonials, recommendations and advisory. When social media came along, it created the potential for serious regulatory violations. FINRA then created the standard upon which Registered Investment Advisor (RIA) firms have been basing their own policies, allowing them to cautiously create an online social presence. Well now the SEC has put out its own set of policies.

The provision that seems to have the biggest impact covers prohibited client testimonial. Under the Advisor Act of 1940 Rule 206(4)-1, advisors may not advertise using client endorsements or testimonials of any sort. The proliferation of Facebook “LIKE” buttons on third-party sites increases the potential to cross regulatory lines, since Liking a post can be viewed as an endorsement. Additionally, positive comments and Liking posts on a Facebook wall can be viewed as testimonials. To prevent issues from occurring, some firms prohibit unregistered public users from commenting or have posted disclaimers stating they do not approve or endorse third-party postings.

With regard to the remaining compliance matters, they read more like suggested best practices for firms to help them adhere to formal regulations and create their own internal social media policies. The SEC found that firms tend to have overlapping policies and procedures that apply to advertisements, client communications and electronic communications which were confusing in that they don’t identify social media specifically. They suggest reviewing internal compliance programs to determine if social media use is addressed and ensure that the rules are currently being followed. The factors they focus on include:

Usage guidelines: restrictions based on risk to firm, which sites are approved, which functionalities are approved

Content standards: suggest clear guidelines for content or use of pre-approved content

Monitoring: determine how to appropriately monitor use and the frequency of monitoring

Firm resources: determine if there are available resources for compliance and monitoring

Participation: determine the appropriateness of a site

Training: training on how to appropriately use social media, consider requirement of certification

Personal/Professional sites: determine if use is through a firm-sponsored profile or through an IAR’s individually created profile, review potential risks for profiles part of a corporate enterprise

Information security: review and address potential information security risks with social media use

Recordkeeping and document retention: determine whether or not recordkeeping is being adhered to based on the Advisers Act if it applies to the content and that documentation is accessible as determined by federal securities laws

To some, the SEC’s new social media guidelines may seem a bit vague. For these individuals, there’s security in knowing they are keeping to clear-cut rules, allowing them to not have to think too much about it. For others, the ability to have some flexibility in their firms’ social media use, within the rules, makes the online experience more enjoyable and more engaging.

What do you think? Are the SEC guidelines too vague or just right? We’d love to hear your opinion!