Posted by Cognito on Thu, Aug 14 2014

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Who's Down with SEC?

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It’s well known that social media is having a significant impact on the investment management industry, as advisers and firms recognize the importance of social media in communicating with existing and potential clients. As tremendous as the opportunities are, the use of social media also presents a number of challenges for firms with regards to maintaining regulatory compliance. In response, the SEC and FINRA have both issued rules and guidance for broker-dealers or RIAs that are considering or already using social media.

Following the recent move by Morgan Stanley to allow brokers more flexibility with regards to its adviser’s Twitter accounts, we thought it might be helpful to provide a brief overview of the rules:



All business communications made through social media must be treated no differently than any other electronic communications and must be preserved for a period of not less than three years, the first two in an easily accessible place. In addition, it is necessary for firms to keep records of all static content and any changes made to the static content.


Static content, such as website content, social network profiles or social network background images, must be approved by a registered principal of the firm before it is posted.

Prior principal approval is not required for interactive content (blogs, tweets, LinkedIn/Facebook status updates, comments, IMs, webinars), however firms must supervise interactive electronic communications to ensure that they do not violate the content requirements of FINRA’s communications rules.

(Consider taking a cue from Morgan Stanley’s book and require individuals to complete online training and have a minimum number of followers. As well, firms could take this a step further by requiring individuals to pass certification tests on an annual or more frequent basis.)

Third-Party Content

Firms may not establish a link to any third-party site that the firm knows or has reason to believe contains false or misleading content. Firms can be held responsible under NASD Rule 2210 for content on a linked third party site if the firm has adopted or has become entangled with its content.

Data Feeds

Firms must adopt procedures to manage third-party data feeds into their own websites or social media platforms to ensure they contain accurate information.


Social media networks should not be used to advertise or promote a product, however if a firm or its personnel does decide to recommend a security over social media, they must ensure it meets the requirements of FINRA’s suitability rule.

Training and Education

Prior to allowing associated persons to use social media for business purposes, take steps to ensure they fully understand the parameters of permitted use. Firms should also develop policies and procedures that include training regarding the difference between business and non-business communications, interactive and static content, as well as provide general training on social media networks. In addition, firms should conduct appropriate training and education regarding its own social media policies, and follow up on “red flags” that may indicate an individual is not complying with policies.

In January 2012, the SEC issued a National Examination Risk Alert which provided several factors firms may want to consider when using social media, in order to comply with federal securities laws. The below includes a few of the key points:

Usage Guidelines

Create guidelines to provide guidance for IARs and solicitors on the appropriate and inappropriate use of social media.

Content Standards (including approval of content)

Firms should give consideration to the reputation of the social media site, including its privacy policy and controls, when analyzing the risk exposure to the firm and its clients. In addition, consider the type of content created and shared via social media, and if it compromises its fiduciary duty. Firms may want to require pre-approval of all content to ensure it meets compliance standards.

Monitoring (frequency of monitoring, resources)

Firms should take into consideration the resources required to effectively and accurately monitor the firm’s social media sites or use of third-party sites, and the frequency in which they monitor activity. A firm may consider using sampling, spot checking or a combination of methodologies to monitor social media usage and content.

Participation (including training and certification)

In order to ensure social media usage standards, content guidelines and policies are fully understood, firms should consider implementing training related to social media for advisers. Training can also be a good way to help promote compliance and prevent potential violations with securities laws. Certifications can be a useful tool to make sure individuals understand and are complying with the firm’s social media policies and procedures.


Per the Advisers Act, advisers that communicate through social media must retain records of any communications that relate to the advisers’ recommendations or advice. Before deciding whether or not to allow the use of social media, firms should take time to determine if they have the available resources to retain the required records

Third-party content / Testimonials

Firms that allow for third-party postings on their social media sites may want to consider implementing policies or procedures regarding third-party postings, including testimonials about the firm or its IARs. Earlier this year the SEC issued additional guidance regarding testimonials on social media, which in essence stated that advisers can publish public comments about their services that are posted on independent websites (Yelp, Angie’s List, etc.), as long as they include both positive and negative reviews. Advisers must have no connection or influence over the third-party site or have the ability to edit the comments.


FINRA, Regulation, SEC, Social Media,
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