Category Archives: Social Media

Investment Advisers Need Strong Policies and Procedures for Supervising Social Media

June 23, 2015

Social media and networking websites are considered forms of advertising covered by Rule 206(4)-1, Advertisements by Investment Advisers, under the Investment Advisers Act of 1940 (“Investment Advisers Act”) and similar state securities regulations.  In a National Examination Risk Alert issued in 2012 by the Office of Compliance Inspections and Examinations of the U.S. Securities and Exchange Commission (“SEC”), the term social media is described as:

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SEC Guidance for Investment Advisers on the Testimonial Rule and Social Media

July 08, 2014

Under Rule 206(4)-1(a)(1) of the Investment Advisers Act of 1940 (Advisers Act), an investment adviser is prohibited from publishing, circulating, or distributing any advertisement that refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by the investment adviser.  With today’s wide spread use of social media, there has been a lot of concern among investment advisers regarding what would constitute a testimonial when using social media.  In March 2014, the U.S. Securities and Exchange Commission (SEC), Division of Investment Management, issued a Guidance Update to provide some guidance on the testimonial rule and social media.  Through this guidance, the SEC Division of Investment Management is seeking “to clarify application of the testimonial rule as it relates to the dissemination of genuine third-party commentary that could be useful to consumers.”

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Best Practices and Guidance for Social Media and Email Communication use for Investment Advisers

June 19, 2013

Social media presents a challenge for investment advisers in their effort to comply with the Investment Advisers Act of 1940 (“Investment Advisers Act”) and other regulations. The Risk Alert regarding Investment Adviser Use of Social Media issued by the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations states that investment advisers using social media should adopt and review their policies and procedures periodically; “Firms should create usage guidelines on appropriate and inappropriate use of social media and should consider adopting policies and procedures to address conducting firm business on personal social media sites.” Additionally, investment advisers have recordkeeping requirements that require certain communications made through social media sites to be retained.  According to the Risk Alert “registered investment advisers that communicate through social media must retain records of those communications if they contain information that satisfies the recordkeeping obligations under the [Investment] Advisers Act.”

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Recent Disciplinary Actions Can Serve as a Warning for Investment Advisers to Have in Place Strong Email Retention and Supervision Policies and Procedures

June 18, 2013

Rule 204-(2)(a)(7) of the Investment Advisers Act of 1940 (“Investment Advisers Act”) requires investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”), to preserve “all written communications received and copies of all written communications sent by such investment adviser relating to (i) any recommendation made or proposed to be made and any advice given or proposed to be given, (ii) any receipt, disbursement or delivery of funds or securities, or (iii) the placing or execution of any order to purchase or sell any security . . . .” The SEC has stated that electronic communications are considered written communications and are subject to the supervisory and record keeping requirements. Most books and records requirements for state registered investment advisers are the same as or similar to the SEC requirements, but each state registered investment adviser needs to make sure that it familiarizes itself with the requirements of its securities regulator.

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Investment Advisers Should Have Compliance Policies and Procedures for the Use of Social Media

June 12, 2013

The use of social media and networking websites is becoming an increasingly common communication and marketing tool. If an investment adviser permits the use of social media and networking websites by its supervised persons, the investment adviser must have in place strong compliance policies and procedures that clearly define acceptable use and address key areas such as supervision and record retention.

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State Privacy Laws and Investment Advisers’ Recordkeeping Requirements

August 16, 2012

Recently, Maryland and Illinois have passed employment privacy laws that could potentially have an effect on investment advisers and their recordkeeping requirements under both state and SEC rules. Delaware passed a similar privacy law that protects students from infringement by educational institutions. Maryland was the first state to pass a law of this kind in May 2012. Illinois followed a couple months later in July 2012. Several other states have similar bills on the docket for their state legislatures and members of Congress also have a bill to deliberate.

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Illinois Becomes Third State to Pass Privacy Law Conflicting with SEC Social Media Compliance Regulations for Investment Advisers

August 01, 2012

Today Illinois Governor Pat Quinn signed a new law that makes it unlawful for employers to request passwords to social media accounts or from demanding access to social media accounts from potential and current employees. Illinois became the third state to pass such legislation after Maryland and Delaware recently adopted similar laws in May and July. After signing the law Governor Quinn said, “Members of the workforce should not be punished for information their employers don’t legally have the right to have. As use of social media continues to expand, this new law will protect workers and their right to personal privacy.”

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States Passing Privacy Laws that Conflict with FINRA and SEC Social Media Compliance Regulations

July 17, 2012

Keeping up on the new rules and regulations regarding social media use can be a difficult task for investment advisers and broker-dealers.  Recently, the U.S. Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) have each issued alerts and notices to investment advisers and broker-dealers offering guidance on social media use.  The SEC issued an alert in January of this year and FINRA has issued Regulatory Notice 10-06 and Regulatory Notice 11-39; these alerts and notices generally require investment advisers and broker/dealers to monitor and archive any business communications their employees have with clients.  Now, many states and even the federal government have bills under consideration that would limit employers’ access to its employees’ social media accounts.  If these laws are passed they could make it even more difficult for investment advisers and broker-dealers to keep adequate records and ensure compliance with the social media rules and regulations.

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Sample Client Request/Delivery Log for Code of Ethics Rule Available on Facebook

May 07, 2012

Under Rule 204A-1 (“Code of Ethics Rule”) of the Investment Advisers Act of 1940 (“Investment Advisers Act”), each investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) is required to adopt and implement a code of ethics that sets forth required standards of conduct for all supervised persons of the registered investment adviser and addresses conflicts that arise from personal trading by advisory personnel. Most state securities regulators have similar requirements.

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