Ask any mutual fund manager or ETF provider about using social media and likely the first thing to come up will be compliance. Staying compliant within an open and for the most part uncontrollable communications channel is a challenge and one of the main reasons for the industry's slow adoption of social media strategies. But even the most hesitant firms can't deny that social media is here to stay.
A December 2013 study from the Pew Research Internet Project estimates that 73% of U.S. online adults are using at least one social network, up from 46% in 2009. For that reason, firms that are able to implement social media now may have a distinct advantage in understanding and leveraging the various platforms in the years to come as they continue to increase in use. While the SEC and FINRA have released more substantial guidance on social media use recently, many firms still view social media as risky in the current climate of increased regulatory scrutiny. The industry's slow adoption is not all that different from what happened in the mid-1990s as the internet began to boom and firm websites began to pop up. As guidance from the SEC and FINRA became clearer, nearly every firm developed a website, even if it took a while. You'd be hard pressed to find a firm that doesn't have one today. It's not hard to envision this same scenario playing out with social media over the next few years. But before jumping in head first, here are a few tips and considerations to ensure that your social activity doesn't lead to compliance headaches.
1. Carefully Select Formats and Platforms
SEC and FINRA have not released guidance on any individual social media platform. Instead the guidance is broad, meaning that there are no restrictions on using any particular platform, but it also creates challenges as different platforms have different functionality. For instance, because Twitter is an open social media platform that does not restrict its audience, any tweet is generally considered a "retail communication" and must follow a certain set of requirements. On the other hand, firms using LinkedIn can create private discussion groups that restrict viewing and therefore may be subject to institutional rules. It is critical for firms to deeply understand the functionality of the platforms they're using and how to adjust settings for each platform to meet requirements so that there is no compliance confusion.
2. Create Common Sense Guidelines
As Joe Price, the senior vice president of corporate financing and advertising regulation for FINRA put it last year at LinkedIn's Finance Connect conference when talking about social media compliance, "I don't think the rules of the road are overly complex." While the technology itself is new to firms and its interactive nature creates some unique situations, Price was advocating for a common sense approach to firms making social media policies and decisions. Until more substantial guidance is released, FINRA has specifically said it "is seeking to interpret its rules in a flexible manner to allow firms to communicate with clients and investors using this new technology." With this context in mind, setting up clear policies and procedures is critical, but firms should not be overly concerned with any "gotcha" rulings coming from regulators. If a particular message wouldn't have been acceptable using traditional forms of communication, it won't be acceptable on social media either, and if it was acceptable, it probably still will be.
3. Create a Content Calendar
In the mainstream news, we hear stories every day of social media gaffes involving celebrities, individuals and brands who clicked "tweet" or "post" without thinking. To both satisfy regulatory guidance and limit reputational risk, pre-approval of messaging is advisable. But in order to make the pre-approval process smoother and to create content that is timely and relevant on social media platforms, firms should create a calendar of upcoming content for at least three to four months out. This will allow for effective compliance review. It also allows them to pre-plan content based on events and happenings, such as fund launches and conference speaking events that may coincide with the timing of their posts.
4. Label Your Content
For the purposes of FINRA there are two types of fund-related social media content: "static" content that must be pre-approved and filed and "extemporaneous" content that is subject to supervisory requirements. There are also recordkeeping requirements for all of this communication.
In general, everything that is posted on social media needs to be filed with FINRA unless the content is generic, with no mention of financial or investment information, or if it is purely social, such as wishing followers, "Happy 4th of July." Firms would be wise when creating a content calendar to label content so they begin to have a better understanding of how future communications might be categorized.
5. Recycle Content
In the world of social media, it's not unusual to see information re-posted and re-used on an ongoing basis. For mutual fund managers and ETF providers, this is a particularly attractive strategy because content that has been pre-approved and/or filed with FINRA does not need to be re-filed. Firms can alleviate compliance concerns by re-using existing content or creating templates that used pre-approved language.
The final book on social media compliance has yet to be written. Much like the adoption of email and the web before that, it will likely take years before guidance is crystal clear. But to date, the compliance concerns around social media don't outweigh the client and investor benefits.
A measured, and careful approach using some of the tips outlined here, will allow firms to "get social" with their audiences and reach them in new and exciting ways.
Lori White is corporate counsel at SEI Investments Company.