The Massachusetts Securities Division recently released a report providing guidance on social media use by investment advisers. As we wrote earlier, the Massachusetts Securities Division has been investigating social media use by investment advisers. This investigation has resulted in the Massachusetts Securities Division issuing this report to provide guidance on the most common issues identified during their investigation.
In the report, the Massachusetts Securities Division reaffirmed that connecting with clients through social media is acceptable, but investment advisers need to keep records of such communications and they need to have policies and procedures in place for monitoring the social media outlets. One of the more noteworthy topics addressed by the Massachusetts Securities Division concerns the content posted by third parties. If an investment adviser removes negative comments, while leaving positive ones, securities regulators may view this as misleading and an adoption of the positive comments. Consequently, an investment adviser should consider adopting a policy and procedure requiring the review of material posted by third parties and outlining the criteria for removal.
The Massachusetts Securities Division also reminded investment advisers that any business-related content posted on social media sites is considered advertising and is therefore subject to the state securities regulator’s advertising rules, including the ban on testimonials. However, the Massachusetts Securities Division has taken the position that if a client “Likes” an investment adviser’s Facebook page, without taking any further action, the “Like” is not considered a testimonial. Whereas, the U.S. Securities and Exchange Commission (“SEC”) has stated that use of the “Like” feature by a client on an investment adviser’s social media page “could be deemed to be a testimonial if it is an explicit or implicit statement of a client’s … experience with an investment adviser.” Although the SEC’s position does not necessarily contradict the Massachusetts Securities Division’s position, it is not clear what the SEC’s position is when a client “Likes” an investment adviser’s corporate Facebook webpage. The only example the SEC has provided is if an investment adviser solicits the public to “Like” the biography of its investment adviser representative, the “Like” is considered a prohibited testimonial.
For investment adviser firms that choose to establish Facebook pages, we recommend including a disclosure on the investment adviser’s Facebook page that is similar to the following:
The clicking of the “Like” button by other individuals should not be considered a positive reflection or recommendation of the [Investment Advisor] or investment advisory services offered by [Investment Advisor]. The clicking of “Like” button should only be considered as a means to circulate and receive news updates from [Investment Advisor] via Facebook. Visitors to this Facebook page must avoid posting positive reviews of their experiences with the adviser or its services as such testimonials are prohibited under state and federal securities laws and may not reflect the experience of all clients of [Investment Advisor].
Although the Massachusetts Securities Division suggests using a similar disclosure, at this moment, it is unclear to us whether such a disclosure based approach will be accepted by the SEC or other securities regulators. Based upon the SEC’s comments regarding the “Like” feature and the lack of regulatory precedents specifically relating to the unique “Like” feature on corporate Facebook pages, an investment adviser should exercise caution and consult with its own compliance professional for a recommendation specific to the particular investment adviser’s situation.
We cannot over emphasize how important it is for investment advisers to have policies and procedures in place regarding the use of social media, even if your investment adviser simply bans the use of it. If your investment adviser has not yet implemented any policies and procedures regarding the use of social media, the report by the Massachusetts Securities Division along with the regulatory alert recently released by the SEC provide a good framework to use when developing such policies and procedures. If you need any assistance with developing social media policies and procedures for your firm, you may click here to schedule a time to speak with one of our consultants.
Finally, RIA Compliance Consultants has recorded a webinar, “Compliance for Social Media Site,” which discusses the key issues and best practices to consider when designing policies and procedures for social media. (Please note that this webinar was recorded last fall prior to the recent guidance from the Massachusetts Securities Division and SEC and therefore does not include their more recent analysis, opinion, and interpretations as part of the webinar.) You can purchase a recording of this webinar by clicking here.