The Use of Social Media Sites Can Create Compliance Problems for Registered Investment Advisers

September 27, 2011

Social media sites such as Facebook, Twitter, and LinkedIn can be useful business tools for investment advisers.  However, there are several compliance issues that social media sites present.

While the US Securities and Exchange Commission (“SEC”) has not released any specific rules or guidance on the topic, there are several existing rules that investment advisers need to keep in mind when using social media sites.  Information posted online by an adviser is considered an advertisement and therefore must comply with all advertising regulations, including record retention which can be difficult for an ever changing site.  Further, comments posted by a client could be considered a testimonial, which are banned by Rule 206(4)-1 of the Investment Advisers Act of 1940.

In addition to these issues, each site presents its own compliance challenge.  For example, LinkedIn allows users to make recommendations for other users.  While these recommendations could be useful in promoting your business, they are considered client testimonials which are prohibited by Rule 206(4)-1.  Another example is the “Like” function on Facebook.  Some commentators are concerned that if a client “Likes” an investment adviser’s page, the regulator might consider this as a client testimonial and not a method for merely accessing or circulating the Facebook page.

To address these issues, on October 13, 2011 RIA Compliance Consultants will be hosting a webinar, “Compliance for Social Media Sites.”  At this webinar, one of our compliance consultants will provide guidance regarding record retention and developing policies and procedures relating to social media websites.  You can register for this webinar by clicking here.

Posted by Bryan Hill
Labels: Compliance Training, SEC, Social Media