A decade is not an unusually long time to wait for regulatory guidance, especially on issues that aren’t bright lights on the political radar. Even in our everyday lives, 2004 may not seem so far away.
But change the context and things look different. In April 2004, Facebook (at the time “Thefacebook”) was barely two months old and only available to students at Harvard, Columbia, Stanford, and Yale. LinkedIn had launched less than a year earlier, and it was still years away from entering the mainstream. Twitter was barely a gleam in the eyes of its creators; the world’s first tweet would not appear for another two years. Gmail was brand new and invite-only. There was no YouTube.
Suddenly, 2004 seems so much further away.
The Securities and Exchange Commission is finally catching up. Commission staff recently issued new guidance for financial advisers who use, or have clients who use, various third-party websites and social media platforms. Until now, RIAs have had to create their own social media compliance policies with largely no clearly defined boundaries to advise on how the SEC expected us to use these new communication channels.
The recent update focused on one of the two main rules RIAs are concerned about when using social media: the blanket ban on “testimonials” in investment adviser advertising. The commission’s longstanding position is that the Investment Advisers Act of 1940 prohibits advisers from quoting or circulating testimonials, which are not defined by law but have long been regarded as a description of experience. of a client or an endorsement of the skills of a consultant. The SEC believes that testimonials are inherently misleading because advisors often cite only good experiences or positive results, giving potential clients a skewed view of the advisor’s success.
Before social media, the testimonial rules applied perfectly to marketing and were reasonably clear. But in the world we live in now, being “liked” or “favorite” by someone doesn’t always mean you’re someone’s favorite or even particularly liked. Furthermore, investment advisers do not always have control over whether a third party talks about them online, let alone control over what that third party might say. Until now, RIAs have primarily approached the intersection of the testimonial rule and online reviews or discussions through common sense and consistency.
The new SEC guidance is not carte blanche. The testimonial rule is still in force. But for advisers who were concerned about non-employees discussing their businesses on a site like Yelp or Angie’s List, the SEC made a clear distinction. If the site is not affiliated with the advisor and displays good and bad reviews without the advisor being able to remove or modify the reviews, the advisor should not worry and may even direct potential customers to those reviews as long as all reviews are included. He can’t cite a positive Yelp review, but he can say “Visit us on Yelp.”
In addition, the SEC has clarified that if a client likes the adviser so much that they choose to create a fan page, on Facebook for example, that is not the adviser’s concern (although the adviser should be careful to link to a this guy from his own website). or social media accounts). As long as RIAs are diligent in monitoring what accounts they can, such as your company’s Facebook page or website, they no longer need to patrol the internet, scour third-party sites for potential testimonials, and ask cartels to remove them. Your own sites and your own employees are the main view for advisors.
The SEC’s focus on communications and advertising that RIAs authorize or buy seems reasonable, not to mention more realistic than advising users to monitor what unrelated people on independent platforms write. Instead of having to explain over and over again to professional contacts in different industries that while they mean well, they can’t endorse investment-related skills on LinkedIn, advisors can focus on making sure their own employees know better. and leave it like that.
The SEC also clarified that lists of people who like or follow a social media account don’t count as “endorsements,” which is a good thing, because many social media channels don’t allow you to hide such lists. As long as RIAs don’t try to claim that everyone who follows them is a customer or supporter, they should be free, even if customers want to be among those friends or supporters.
Jennifer Openshaw, president of Finect, said the guide “is a positive step forward for the industry.” She suggested that it could be a source of encouragement for investment advisers to be more proactive online. (1) Others still urge erring on the side of caution, including Yasmin Zarabi, Vice President of Legal and Compliance at Hearsay Social, who wrote that “In general, advisors should avoid soliciting feedback from clients in a way that could frame a Facebook like or a third-party post as a testimonial.” (2) Zarabi encourages advisors to avoid LinkedIn endorsements altogether, exercise caution when linking to third-party sites, and include disclaimers on social media accounts in an effort to avoid any potential appearance of violating the guidelines . Clearly, given the range of reaction, the SEC’s recent guidance is simply a step in the right direction.
Earlier in this post, I mentioned two main rules that RIAs are concerned about when using social media for business. In addition to testimonial rules, social networks also raise concerns about communication rules. Advisers are required to maintain records of communications with investment clients and other parties. The new guidance does not address record keeping on social media. Can an advisor engage in communication through posts and comments on the Facebook timeline, or through direct messages on the social networks that offer it? The new guide does not talk about this topic at all.
Trade publications recently quoted an official from the SEC’s Office of Investment Adviser Regulation as saying: “In general terms, companies that communicate via social media must keep records of those communications covered by the rule of record keeping. It is really the content that determines rather than the form of communication.” used.” But are advisors effectively prohibited from communicating with clients on social media? If not, are they required to save screenshots of substantive discussions (which are likely inappropriate for such platforms anyway) and jokes? friendly alike?The rules are unclear, and SEC staff will likely have to revisit social media to address such concerns in the not-too-distant future.
We cannot expect SEC staff to keep up with every new technology and communication channel, so we are best served by regulators who base their guidance on common sense and common principles that RIAs can apply to new situations as they arise. Last week’s release does exactly that, taking a sensible and reasonable approach in applying old rules to new technology. Staying on this path will be good for the public, the industry, and the SEC itself, no matter what happens in the next 10 years.
Sources:
1) Investment News, “SEC Approves Use of Third Party Social Media Endorsements”
2) Financial Planning, “Social Media Compliance: What Investment Advisers Need to Know”
