Compliance Solutions for Investment Advisers

FAQs — Social Media

 

What is “social media”?

“Social Media” is an umbrella term that encompasses various activities that integrate technology, social interaction and content creation. Social media may use many technologies, including, but not limited to, blogs, microblogs, wikis, photos and video sharing, podcasts, social networking, and virtual worlds. The terms “social media,” “social media sites,” “sites” and “social networking sites” are often used interchangeably.

Is the social media activity engaged in by an investment adviser subject to regulation?

Yes. An investment adviser’s use of social media must comply with various provisions of the federal securities laws, including, but not limited to, the antifraud provisions, advertising provisions, compliance provisions and recordkeeping provisions.  Accordingly, advisory firms using social media should adopt, and periodically review the effectiveness of, policies and procedures regarding social media.

Is an investment adviser responsible for the social media activity of any solicitors used by the advisory firm?

Yes. An advisory firm that uses solicitors should incorporate the use of solicitors into the firm’s social media policies and procedures.

What factors should an investment adviser consider when evaluating the effectiveness of its compliance program with respect to firm, investment adviser representative and/or solicitor use of social media?

The SEC suggests that an investment adviser consider the following factors:

  • Usage Guidelines. An advisory firm should consider whether to create firm usage guidelines that provide guidance to investment adviser representatives and solicitors on the appropriate and inappropriate use of social media, including restrictions and prohibitions regarding the use of social media sites based on the firm’s analysis of the risk to the firm and its clients.
  • Content Standards. An advisory firm should consider the risks that content created by the firm or its investment adviser representatives or solicitors implicates its fiduciary duty or other regulatory issues.
  • Monitoring. An advisory firm should consider how to effectively monitor the firm’s social media sites or firm use of third party sites, taking into account that many third-party sites may not provide complete access to a supervisor or compliance personnel.
  • Frequency of Monitoring. An advisory firm should consider the frequency with which it monitors investment adviser representative or solicitor activity on a social media site.
  • Approval of Content. An advisory firm should consider the appropriateness of pre-approval requirements.
  • Firm Resources. An advisory firm should consider whether it has dedicated sufficient compliance resources to adequately monitor investment adviser representative or solicitor activity on social media sites.
  • Criteria for Approving Participation. In analyzing the risk exposure for an advisory firm and its clients due to the use of a social networking site, the advisory firm’s compliance procedures should consider, without limitation, the reputation of the site, the site’s privacy policy, the ability to remove third-party posts, controls on anonymous posting and the advertising practices of any social media site that the firm, or its investment adviser representatives or solicitors use to conduct business.
  • Training. An advisory firm should consider implementing training related to social media that seeks to promote compliance and to prevent potential violations of the federal securities laws and the firm’s internal policies.
  • Certification. An advisory firm should consider whether to require a certification by investment adviser representatives and advisory solicitors confirming that those individuals understand and are complying with the firm’s social media policies and procedures.
  • Functionality. An advisory firm should consider the functionality of each social media site approved for use, including the continuing obligation to address any upgrades or modifications to the functionality that affect the risk exposure for the firm or its clients.
  • Personal/Professional Sites. An advisory firm should consider whether to adopt policies and procedures to address an investment adviser representative or solicitor conducting firm business on personal (non-business) or third-party social media sites.
  • Information Security. An advisory firm should consider whether permitting its investment adviser representatives to have access to social media sites poses any information security risks.
  • Enterprise Wide Sites. A registered investment adviser that is part of a larger financial services or other corporate enterprise may consider whether to create usage guidelines reasonably designed to prevent the advertising practices of a firm-wide social media site from violations of the Advisers Act.

Is an advisory firm responsible for postings made by a third party to the firm’s social media site?

Yes. Advisory firms should be aware that a third party posting could be considered a testimonial and therefore, a violation of Advisers Act Rule 206(4)-2. Whether a third party statement is a testimonial depends upon all of the facts and circumstances relating to the statement.

Is an investment adviser required to keep records of its use of social media?

Yes. Recordkeeping obligations do not differentiate between various media, including paper and electronic communications, such as emails, instant messages and other Internet communications that relate to the advisers’ recommendations or advice. Registered investment advisers that communicate through social media must retain records of those communications if they contain information that satisfies an investment adviser’s recordkeeping obligations under the Advisers Act.

What should an investment adviser consider when formulating its social media recordkeeping policy?

Investment advisers should consider adopting policies and procedures that address (if relevant) the following factors, among others, relating to the recordkeeping and production requirements of required records generated by social media:

  • Determining, among other things, (i) whether each social media communication used is a required record, and, if so, (ii) the applicable retention period, and (iii) the accessibility of the records.
  • Maintaining social media communications in electronic or paper format (e.g., screen print or PDF of social media page, if practicable).
  • Conducting employee training programs to educate advisory personnel about recordkeeping provisions.
  • Arranging and indexing social media communications that are required records and kept in an electronic format to promote easy location, access and retrieval of a particular record.
  • Periodic test checking (using key word searches or otherwise) to ascertain whether employees are complying with the compliance policies and procedures (e.g., whether employees are improperly destroying required records).
  • Using third parties to keep records consistent with the recordkeeping requirements.

What types of social media documents does the SEC typically request during a regulatory examination?

The SEC may request that an investment adviser produce the following documentation related to the use of social media:

  • All documents sufficient to identify the adviser’s involvement with or usage of social media web sites;
  • All documents concerning any communications made by or received by the adviser on any social media web site;
  • All documents concerning the adviser’s policies and procedures related to the use of social media web sites by the adviser, including, without limitation: (i) all policies and procedures concerning any communication posted on any social media web site by the adviser; (ii) all policies and procedures concerning any prospective communications to be posted on any social media web site by the adviser; and (iii) all policies and procedures concerning any ongoing monitoring or review process related to communications posted on any social media web site by the adviser;
  • All documents concerning the adviser’s policies and procedures concerning a third party’s use of any social media web site maintained by the adviser, including, without limitation: (i) all policies and procedures concerning any communication posted by a third party, including, without limitation, actual or prospective clients of the adviser, on any social media web site maintained by the adviser; (ii) all policies and procedures concerning any approval processes for prospective communications to be posted by a third party, including, without limitation, actual or prospective clients of the adviser, on any social media web site maintained by the adviser; and (iii) all policies and procedures concerning any ongoing monitoring or review processes related to communications posted by a third party, including, without limitation, actual or prospective clients of the adviser, on any social media web site maintained by the adviser;
  • All documents concerning the adviser’s policies and procedures related to the use of social media web sites by the adviser’s personnel for personal, non-business related matters;
  • All documents concerning the adviser’s personnel training and education related to the use of social media web sites by the adviser, whether for personal, non-business related, or business related matters;
  • All documents concerning any informal or formal disciplinary action of the adviser’s personnel related to the use of social media for personal, non-business related, or business-related reasons; and
  • All documents concerning the adviser’s record retention policies and procedures concerning the involvement with or usage of, whether for personal, non-business related, or business-related matters, any social media web site maintained by the adviser by: (i) the adviser; (ii) the adviser’s personnel; or (iii) any third party.

 

Important Information

The information contained in this Frequently Asked Questions is only a summary and is not intended to be a comprehensive analysis of the rules and regulations applicable to registered investment advisers. It is not intended to constitute legal or compliance consulting advice or apply to any one investment adviser’s particular situation. For more information, please see our Terms of Use.

line