Increasingly, financial advisors are using social media to communicate with clients, share relevant content with a captive audience, and increase their productivity by streamlining client outreach efforts.
Some advisors who do not use social media cite compliance limitations as the primary reason.
To the extent that they have weighed in, the SEC and FINRA allow financial advisors to communicate with clients on social media and often refer to their more general guidelines on investor communications and advertising as a logical starting point. Existing laws restricting what advisors can say in advertisements and other marketing materials also apply to social media. Under these laws, prohibited actions include:
- Giving investment advice via social media;
- Recommending specific products;
- Promising performance results; and
- Presenting nonfactual information as facts.
As social media grows in importance and as a primary method of communication, the SEC has revisited its stance. In March 2014, the SEC issued a Guidance Update giving a green light to advisors to engage more fully in social media networking, with some caveats. These include sharing standard disclosures on social profiles, regulating the dissemination of genuine third-party commentary to comply with the testimonial rule, and abiding by antifraud, compliance and recordkeeping provisions.
Besides these caveats and regulations, advisors must also abide by rules set by their own companies.
We recommend that all financial advisors follow these steps before establishing any social media account or starting to use their personal social media accounts for work:
- Review the SEC’s National Examination Risk Alert, titled “Investment Advisor Use of Social Media” (dated January 4, 2012)
- Reference FINRA’s Advertising Regulation, FINRA Rule 2210
- Regulatory Notice 13-03 – FINRA Provides Guidance on New Rules Governing Communications With the Public (dated January 2013)
- Regulatory Notice 12-29 – SEC Approves New Rules Governing Communications With the Public (dated June 2012)
- Note the SEC’s Guidance on the Testimonial Rule and Social Media (dated March 2014)
- Check with your company’s compliance department to learn more about internal policies and procedures, as well as regulatory guidelines
Advisors must be willing to commit to all SEC and FINRA regulations and policies as well as their own company’s guidelines before establishing any social media effort.