After years of waiting, Registered Investment Advisers no longer have to guess how the SEC views social media compliance. On January 4, the SEC released new guidelines designed to help RIAs adhere to the Advisers Act Rule 206(4) – 7 and federal securities laws, including the antifraud, compliance and recordkeeping provisions.

During their analysis, the SEC found that many firms had social media policies and procedures — but a number of them did not specifically outline permitted and prohibited social networking activities. Rather than providing hard-and-fast rules for effectively creating these guidelines — like FINRA has — the SEC offers 13 “non-exhaustive factors” RIAs may want to consider when creating their social media policies and procedures. After reviewing these topics, I’ve boiled each one down to the questions you should ask yourself to ensure your policies and procedures are sufficient.

Social Media Compliance Questions

1. Usage Guidelines: What sites and functions are approved? Which social media channels are firm representatives prohibited from using?
2. Content Standards: Will you provide content guidelines, prohibit certain types of content or enforce other restrictions?
3. Monitoring: How will you effectively monitor social media usage?
4. Frequency of Monitoring: After analyzing risks, how often will you monitor posted social media?
5. Approval of Content: Should you approve content before an employee posts it, rather than after the fact?
6. Firm Resources: Should you outsource social media monitoring? Or do you have adequate, informed resources in-house who can handle these responsibilities?
7. Criteria for Approving Participation: How will you determine which social media tools to allow?
8. Training: How will you train employees on your firm’s social media compliance?
9. Certifications: Will you require firm representatives to sign a pledge certifying they understand and will comply with your firm’s rules?
10. Functionality: How do each tool’s functions and policies affect users — and potentially open you and your clients to risk?
11. Personal/Professional Sites: On what sites may firm representatives conduct business? What information can they share?
12. Information Security: How will you protect sensitive data from hacking and other risks?
13. Enterprise-Wide Sites: If you are part of a larger organization, how can you ensure firm-wide social media complies with the Advisers Act?

In addition to answering these questions, you also need to ensure you are up to speed on third-party content and recordkeeping responsibilities.

If you’re unsure whether you are in compliance with social media requirements, or you don’t want to lose out on the potential value social networking can provide, call me at 804.965.5403 and we can talk about your questions and concerns. The Oyster team and I are here to provide sound advice and help make sure you — and your company — remain protected in your social media conversations.

Earlier this year, I wrote a four-part series on social media compliance, because few topics seem to generate as much uncertainty and confusion for financial professionals — and regulators — these days. FINRA presented notice 10-06 last January, but just as social media tools change rapidly, so does the guidance controlling them. Consequently, FINRA released regulatory notice 11-39 in August, with additional information on how firms must supervise and record their social media activities. 

The new notice does not alter 10-06; instead, it gives direct responses to user questions regarding recordkeeping, supervision, links to third-party sites, data feeds and personal devices. Some of the further clarification includes:

• FINRA supervision requirements differ for static and interactive communications, but the recordkeeping requirements do not.
• Interactive content can become static depending on how you use it.
• Firms must train and educate their employees regarding their specific social media policies and procedures.
• Firms that “co-brand” a third-party site — including prominent placement of their logo — are responsible for all site content.
• Firms must ensure social media compliance in all business communications — regardless of whether they occur on company- or employee-owned equipment.

Notice 11-39 offers brief explanations and 14 Q&As, but many firms still have questions about how to best protect themselves from social media risks. If you have any questions or concerns about your firm’s social media compliance before, give me a call at 804.965.5403. Ultimately, education, training and firm policies are the foundation of a healthy social media presence — and I’d be happy to help ensure you are protected.

Over the past few weeks, I’ve written about the potential opportunities, threats and regulations guiding broker/dealers’ and RIAs’ use of social media. But one glaring question remains unanswered: With numerous channels and participants, how on earth do you stay on top of all the social media content created by or on behalf of your firm?

Thankfully, technology is on your side to help you.

Social media tools designed specifically for financial professionals can help you embrace new communication channels — while complying with FINRA and SEC regulations. Several products currently exist, and I believe the offerings from Smarsh, Global Relay and SunGard Protegent are worth a look. Their capabilities vary, but each of these tools is designed to help you monitor and archive your firm and employees’ interactions on social media, including Facebook, Twitter and LinkedIn.  

Global Relay and Smarsh have worked in the email archiving and content filtering space for years, and many of our clients have used their products for email and instant messaging compliance. SunGard, on the other hand, is a technology and compliance software company that has focused on surveillance, supervision and trading — their Protegent Social Media Surveillance for financial professionals is their first foray into electronic communications, but archiving has been a core offering for many years. Despite being new to the electronic communication arena, Protegent is worth careful consideration, too.

According to Suman Garhwal, SunGard’s vice president of business integration, they developed Protegent to “leverage their experience providing compliance solutions, helping organizations with a proactive approach to monitoring and our bandwidth to partner with clients to build a product that meets their needs.”

Garhwal believes financial firms realize the urgent need for automated tools that help fulfill their regulatory obligations with social media, but they’re unsure how to best manage their communications. And if my experience at their recent compliance summit in Miami was any indication, Garhwal is right on: Of all the breakout meetings offered, the social media compliance session was by far the best attended.

Because each social media tool’s services differ, I can’t say which will best address your firm’s needs. But after conducting research and before making your selection, I highly recommend you talk to their current and former clients to learn more about their experiences and perspectives. And as always, call me at 804.965.5403 with any questions. I might not always be by my phone, but I will always call you back.

So, you’re ready to start using social media for your company — and you’ve learned about some of the benefits and risks involved — but still need a further understanding of the specific rules guiding financial professionals’ participation. Because controlling social media’s regulatory and litigation risks is essential, ensuring you “follow the rules” will help you turn social media into a powerful branding tool for your company.

To help you navigate the compliance landscape, below are some of the social media regulations broker/dealers and RIAs must follow:

                                                                                                                                                          

                                                                                                                                    iStockphoto®, ©sd619, Social Media & Web 2.0 Apps on Apple iPhone 4

Social Media Compliance for Broker/Dealers                                                                                

In January 2010, FINRA released Notice 10-06, which reasserts what we already knew to be true with a bit of clarification: Basically, if you’re a broker/dealer, you better have a social media policy in place. FINRA is reviewing firms’ policies and testing them in routine exams. They assert the following:

• Static content is an “Advertisement” while interactive content is a “Public Appearance” (FINRA Rule 2210).
• You must copy legal and compliance when research department personnel are involved (FINRA Rule 2711).
• Suitability standards for “recommendations” apply, so be very careful when recommending a product or investment.
• You must handle customer complaints appropriately (FINRA Rule 3070).
• You must maintain electronic records in a WORM Format (FINRA Rule 3110, SEC Rules 17a-3 and 17a-4). Technology does exist to answer this requirement. Check our next blog post to learn about the tools that can help you comply.
• Third party posts can be tricky, and you should be familiar with the SEC’s entanglement theory. Have good disclaimers, and state terms and conditions for customers posting on your site.

Social Media Compliance for Registered Investment Advisors

Though receiving more clarity from regulators on how to appropriately use social media would be helpful, the rules for broker/dealers and RIAs are fairly similar. To protect yourself — while waiting for regulators to create more detailed, formalized guidelines — you should know:

• Social media should be a component of the compliance program.
• Static content is an “Advertisement” while interactive content is a “Public Appearance” (SEC Rule 206(4)-1 and 204-2).
• Watch for the prohibitions under Rules 206(4)-1 by paying special attention to:

     o   Testimonials

     o   Use of prior recommendations
     o   Charts and formulas that can be used to make investment decisions
     o   Free services

To help keep you informed and protected, our final installation in the Social Media Compliance series will introduce some tools that may help you make the most of your social media opportunities. In the meantime, call me at 804.965.5403 with any questions. I might not always be by my phone, but I will always call you back.

Social Media Compliance for RIAs and Broker Dealers

Anyone who has attended an event for financial professionals or investors has more than likely heard a regulator open their speech with, “The opinions are my own and don’t reflect those of the (insert regulator here).” From social media compliance to market commentary, regulators have the ability to speak freely without representing their employer. When an associate speaks or presents publicly viewed content, however, your firm is on the hook.

And with the rise of social media, that hook just got a lot bigger.

While I frequently hear chief compliance officers say, “Our firm prohibits social media to avoid the risk,” trying to ignore or prevent social media use is futile. Even if employees aren’t talking about your company online, your clients, competitors — and even impersonators — may be.  

But, just as investors must understand the risks involved in portfolio opportunities — and shouldn’t just frantically jump at hot stocks — you should approach social media with care and understanding. When embarking on a social media campaign, I suggest you understand two primary reputational risks involved, so you can address these challenges before they become problems.

1. Dated Content

One of the catches with social media engagement is you must maintain frequent and relevant posts for your efforts to help you. An infrequently updated online presence can be worse for your business than no online presence, because the inconsistency shows in your actions and can imply you don’t stick to what you start. Additionally, in a quickly changing industry like finance, only recent content is truly relevant.

Before jumping on the social media bandwagon, make sure you have a process and schedule for regularly providing fresh content in every channel you use.

2. Inaccurate Information

Because virtually anyone can join the conversation on social media, ensuring accurate messages are made on behalf of your company is only half the battle. Of course you want to protect your company’s brand in the messages you share, but you must also review how your clients and competitors are discussing your business online. By keeping content accurate, you provide your audiences the information they desire while helping protect the type of details they receive.

Create a review process to catch all online mentions of your company. Doing so will help you comply with regulations and also protect your reputation from inaccurate information or unflattering discussions.


In the next two weeks, I’ll help provide the guidance you need to address these tasks and create a social media compliance program, so you can make the most of your social media opportunities. In the meantime, call me at 804.965.5403 with any questions.  I might not always be by my phone, but I will always call you back.