In September of last year I was in the process of reviewing and updating one of my clients' policies and procedures. During one of our discussions, it came to my attention that he maintained a Twitter account.
According to him, the account was set up to disseminate information to others while allowing him an avenue to keep up-to-date with other industry professionals. So I began asking a series of questions: Who is your target audience? How will you be able to distinguish between industry professionals and the general public? What will be the content? Will you mention products, testimonials, your business or services?
Social Media Is Public Communication
With the creation of social media and its ability to generate instant feedback, it is easy to forget that the use of this medium falls squarely under the Communication with the Public rule. In fact, most investment advisers do not know the guidelines governing the use of social media — and their compliance manuals do not specify the policies relating to the use of these platforms.
Earlier this month, the SEC charged Anthony Fields of Lyons, Illinois — an investment adviser — with offering to sell fictitious securities on LinkedIn and other social media sites. The SEC's press release alleged that Fields offered more than $500 billion in fake securities through these channels. Concurrent with the announcement, the SEC issued two alerts on social media, identifying a lack of consistency in the way social media and compliance policies are used across the industry.1
What the SEC Expects From Firms
The alert outlined several steps that each firm must consider surrounding the use and approval of social media. Several of these steps call for robust policies and controls. Firms are not only required to issue guidelines — they are expected to approve, monitor, train, and establish a form of recordkeeping for all social media activity. Each of these steps reinforces the need for a stronger, more comprehensive compliance and risk management program.
The stricter regulatory environment surrounding social media has placed more pressure on RIAs. That is why it is always beneficial to have an ongoing policy to monitor and update your compliance programs. This will not only ensure that your firm stays in compliance and remains aware of potential risks — it safeguards against them.
A Real-World Example
As for my client's use of Twitter — he agreed that it would be wise to prohibit the use of the platform given the volume of guidelines and restrictions that would need to be placed on it. In his view, the compliance overhead was not worth the benefit, and he felt that my resources would be better directed elsewhere.
"With the use of any form of social media, it is always best to err on the side of caution."