Social Media Sites for Registered Investment Advisers

It is official, social media madness has taken over. Do you feel like you are behind the times because you do not have a social media presence? Not sure how to approach this hot topic? Social media sites are useful business tools for investment advisers. However, you have to decide how much time you want to devote to social media and what the compliance concerns are surrounding its use.

So far the only guidance has come from FINRA, but the US Securities and Exchange Commission ("SEC") has done sweeps and definitely has this on their radar screen. While the SEC has not released any specific guidance on this topic, there are existing rules that investment advisers should be familiar with when using social media. Rule206(4) of the Investment Advisers Act of 1940 considers any information posted online by an adviser to be an advertisement. This means that all profiles and posts to social media sites would be considered advertisements that are subject to all the advertising regulations. This includes all the disclosure requirements, especially as it relates to performance.
Rule206(4)-1 of the Investment Advisers Act of 1940 prohibits testimonials so advisers have to be careful about allowing comments on their sites by clients. LinkedIn allows users to make recommendations. While these recommendations are good for promoting your business, they are considered testimonials by the SEC and are prohibited. The "Like" functionality on Facebook is another issue. The SEC will probably consider this to be a testimonial as well so this feature should be prohibited.

Remember, record retention is part of the SEC requirements and it can be quite challenging to capture all the changes that have to be archived from social media sites. This includes the instant messenger features as well as emails to and from these social media sites. You need to have a way to capture it and maintain it for not less than five years from the end of the fiscal year during which the “adviser last published or distributed the advertisement”.

While this is by no means a complete listing of everything you should take into consideration before joining the social media frenzy, it’s a good starting point.

Congress Hearing on Investment Advisor SRO

On September 13th , the House Committee on Financial Services held a hearing to discuss forming a self-regulatory organization ("SRO") for investment advisers. There have been three options floating around about this issue and the committee looked at these three options: (1) have the U.S. Securities and Exchange Commission ("SEC") charge a user fee to help fund the need for more frequent regulatory examination, (2) create an independent SRO to regulate investment advisers, or (3) give FINRA the authority to serve as the investment adviser SRO. There were eight individuals that testified in front of the Committee. The breakdown of the opinions of these individuals was very interesting. You can see what their thoughts were in the chart below: