Broker-dealers and investment advisors face a variety of legal and compliance ramifications resulting from the expanding use of social media for business purposes. It is now commonplace that an entity or individual in the securities industry will employ a combination of social media platforms including Facebook, Twitter, YouTube and LinkedIn to market and network with their investors and potential investors. For example, an investment advisory firm may establish its own Facebook page where industry-related information may be posted, an investment advisor may “tweet” investment and wealth management strategies, or a registered representative may present his experience, licensures or his own opinions on trending stocks on his LinkedIn page.
Both the SEC and FINRA have now clearly articulated that the use of social media and its contents by regulated financial entities or individuals is not exempt from pre-existing compliance and regulatory requirements, the latter of which we previously blogged on. Click here for prior blog post. This is so despite the challenges faced when these new “in the moment” marketing channels meet recordkeeping and retention requirements and compliance regulations designed to protect investors. These challenges include ensuring compliant content of communications on platforms that are designed for spontaneous interchange, a firm’s determination and monitoring of “personal” versus “business” use by its registered representatives and employees, and regulating third-party content and contributions to a regulated-entities’ social media platform.
Beginning in late 2010 through early 2011, the SEC conducted a sweep of registered investment advisors and investment adviser firms to gather information about their use of, and policies and procedures regarding, social media including their existing or prospective communications on social media and those related to ongoing monitoring or review of such communications. On January 4, 2012, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a national examination “Risk Alert” providing the Staff’s observations based on a review of investment advisors of varying sizes and strategies that use social media. The OCIE, while more informal than the previously-issued FINRA Notices, made clear that a firm’s use of social media must comply with the already-existing provisions of the federal securities laws including anti-fraud, compliance and recordkeeping provisions. The Risk Alert’s “key takeaway[ ]” was as follows:
Investment advisers that use or permit the use of social media by their representatives, solicitors and/or third parties should consider periodically evaluating the effectiveness of their compliance program as it relates to social media. Factors that might be considered include usage guidelines, content standards, sufficient monitoring, approval of content, training, etc. Particular attention should be paid to third party content (if permitted) and recordkeeping responsibilities.
The Alert came on the heels of the SEC’s January 4, 2012 charge of an Illinois-based investment advisor related to his alleged offer to sell more than $500 billion in fictitious securities through various social-media websites such as LinkedIn. The SEC simultaneously issued an “Investor Alert” aimed to help investors be better aware of fraudulent schemes that use social media, and an “Investor Bulletin” containing best practices for investors to protect their information and avoid fraud.
One well-publicized attempt to comply with applicable regulations has been offered by financial services firm Raymond James Financial Inc. On November 2, 2011, Raymond James and Actiance (the company providing the software for Raymond James’ program), announced the implementation of a self-proclaimed “social media solution for financial advisors.” The “Socialite” platform is described as “enabl[ing] the company’s financial advisors to utilize social media sites including LinkedIn, Facebook and Twitter. The firm is also offering advisors optional marketing support with access to a library of pre-approved content and analytics to measure engagement and their social graph.” The Socialite system apparently allows financial services firms to moderate, manage and archive social media traffic routed through the solution. This approach, while perhaps removing the spontaneity of social media and certainly providing some delay in communications, provides at least a partial solution to this growing industry issue.
Elizabeth Ann Fitzwater is Counsel to the Gibbons Business & Commercial Litigation Department and a member of the Gibbons E-Discovery Task Force.