For many advisors, social media compliance is confusing and scary. The good news, however, is that the regulators are hastening to provide significant clarification and guidance.
On March 15 the SEC issued a new guidance update that clarified its policies on social media technology and the types of communications that must be reported to regulatory agencies. Essentially, the SEC has agreed that certain types of interactive social media posts do not qualify as promotional material or advertisements and do not need to be filed with regulators. This is great news for advisors because the update indicates that the SEC is opening up to increased use of social media by advisors for purposes of marketing, soliciting feedback, and engaging with clients and prospects online.
A bit of history: Section 24(b) of the Investment Company Act of 1940 requires firms to file any advertisements or promotional materials intended for distribution to investors or prospective clients within 10 days of their release. In 2010, FINRA issued an update stating that interactive content on social media platforms qualified as advertising and fell under the jurisdiction of section 24(b) as well as Rule 482, which requires firms to file registered investment company performance advertisements.
Key takeaway: This new update means that in some circumstances, firms and advisors may post in real time without waiting for regulatory approval, getting increased benefit from the interaction. The SEC is clearly telling firms and advisors that they can talk about their products on social media, provide links to additional information and share general market and investment information without filing with FINRA. However, they are still barred from promoting returns or investment merits without going through the proper compliance channels.
From the SEC update, here are some specific examples of social media communications that generally DO NOT NEED to be filed:
- An incidental mention of an investment company or family of funds not related to a discussion of its investment qualifications. Example: Fund X Family of Funds invites you to their annual benefit for XYZ Charity.
- The incidental use of the word performance in connection with a discussion of an investment company or family of funds, without promoting a funds return. Example: We update the performance of our funds every month and publish the results on
- A factual statement including a hyperlink to a fund prospectus or to investment information that is already filed with regulators. Example: XYZ Fund launched two new emerging market funds this week. More info about them is available here
- A statement unrelated to a discussion of the merits of a fund that includes a hyperlink to general financial and investment information. Example: The election is over, what is next for our economy? See our report analyzing the elections.
. Or: Gold and silver have provided a relatively low correlation to stocks and bonds over the last few years.
- A response to an inquiry by a social media user that provides factual information that does not include a discussion of the investment merits of the fund. A firm response may direct the user to information already filed with FINRA or ask the user to contact the firm by phone or email.
User Question: What is a better investment, buying real estate or buying a REIT?
Correct Firm Response: There are a lot of things to consider when choosing between the two options. The answer depends on your goals and risk tolerance and whether you want to invest in a REIT, a fund that invests in REITs, or real property. While we cant talk about specific funds on [social media] please give us a call and well be happy to talk to you in more detail about this.
Here are some examples of social media communications that still NEED to be filed:
- A discussion of fund performance that provides specific mention of some or all of the elements of a funds return (e.g., 1, 5, and 10 year performance) or promotes a funds returns. Example: Fund performance rebounded strongly during the third quarter of 2012.
- A communication initiated by the firm that discusses the investment merits of a fund. Example: As you plan for retirement, consider our new lifecycle fund
While this guidance update is a boon to advisors who would like to make greater use of social media in connecting with prospects and clients, a looser leash on communications does not decrease firms responsibilities for recording and monitoring all the social media content being published, regardless of whether it is filed with regulators. Firms are still required to archive and retain records of all profiles and interactive communications as well as to maintain supervision of employees in the use of social media. If advisors have questions about the appropriateness of a post or communication, its still best to check with compliance to ensure that they stay on the right side of regulators.
This new SEC guidance is a positive signal that our industry is making much needed progress. In a way, you could say were coming out of the social media dark ages, and finally entering the rrenaissance.
Read More: Social Media Compliance 101
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