Ethics Center: Sales & Marketing

Advisor Alert: SEC Ups Disclosure Requirements for Advisor Social Media Accounts

The use of social media as a financial-services marketing strategy has come a long way. Less than ten years ago, only a minority of advisors used platforms such as Facebook and LinkedIn to help promote their businesses. Even that was an uphill battle, with compliance departments and financial regulators placing roadblocks in their path. Today, the majority of advisors use such technologies to engage with the public, promote themselves as thought leaders, and identify experts and best practices that can help them operate more effectively.

The maturation of the social-media regulatory framework has played a large role in fostering this growth. Unlike in the early days, financial advisors now have bright lines to respect, as well as the technology tools to monitor, store, and assess their posts. This is a good thing, since the Securities and Exchange Commission has announced that, starting on October 1. 2017, it will once again raise the social-media regulatory stakes for investment advisors.

The agency announced this move in August 2016 as part of a broader effort to modernize Form ADV disclosure requirements. It will now require more information on ADVs about separately managed accounts, clearer guidelines for umbrella registrations (for multiple investments advisors on one ADV), and various additional data points, including listing the social media platforms on which advisors have a presence and for which they control the content.

Here’s what this means in practice. Starting next October, investment advisors must disclose all of their corporate-owned social media accounts (example: a Facebook business page) as well as individual accounts on which they publish business-related content. The goal of broadening social media regulation:  To give consumers more tools for evaluating the risk of doing business with an advisor. A laudable goal, for sure, but one that will force financial advisors to up their game when it comes to responsible, compliant use of social media.

What to do from now until October 2017? Mike Pagani, senior director of product marketing and chief evangelist, Smarsh, shares a few pointers.

  • First, get ready for closer SEC attention to advisor social media practices. Since they will now have more access to this information, it’s fair to assume they will make full use of it during their advisor audits.
  • Second, take another look at current systems used to archive, manage, and report on social-media use. Make sure they can quickly produce the reports needed to satisfy an SEC auditor.
  • Third, consider using technology that can aggregate social media posts with other forms of client communications in order to provide a full picture of advisor/client interactions across various forms of media and over time.

Other expert tips to consider:

  • Make sure to have appropriate policies and procedures in place that ensure all advisors on social media are properly supervised and trained to use these platforms without posing undue risks to the public.

  • Use appropriate disclosures when posting promotional content and follow all FINRA advertising compliance requirements.

  • Avoid making securities recommendations on social media. Making specific recommendations might lead consumers to think they apply to them. If they don’t work out, clients might file lawsuits claiming violation of fiduciary duty.

  • Most importantly, make sure to post only accurate, supportable information on social media. The last thing you want is someone charging you with misrepresentation and forcing you to use your E&O insurance policy.

With this and all compliance-related matters, it’s better to be safe than sorry. If you’re uncertain about what’s required, check with your compliance department or firm attorney. For further information about E&O insurance, visit the National Ethics Association’s E&O affiliate’s website, EOforLess.com.

For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.