While managing a very tight budget, the Securities and Exchange Commission (SEC) has found work it can do right at their own desks. Last month, the SEC sent a document request list to investment advisors seeking to learn how they use social media sites like Flickr, Facebook, YouTube, LinkedIn and Twitter, according to the compliance alert posted on the ACA Compliance Group's website.
According to the site, “Documentation is requested in order to identify an adviser's level of involvement with or usage of social media websites. The requests have been seen to focus on social media websites such as Facebook, Twitter (and AdvisorTweets.com), LinkedIn, LinkedFa, YouTube, Flickr, MySpace, Digg, Redditt, as well as any blogs used by, or subscribed to, by the adviser.” The ACA Compliance Group site says the SEC is asking for:
- Documentation of communications made by or received by an advisor, including blog postings, messages, and/or tweets;
- Documentation of the advisor's policies and procedures relating to the use of social media websites;
Documentation for any third-party use of social media that is maintained by the advisor; - Documentation of policies and procedures relating to the use of social media by employees for non-business purposes;
- Documentation relating to an advisor's internal training and education programs for employees use (both personal and business-related) of social media websites;
- Documentation regarding any disciplinary action taken against an employee based on their use of social media websites; and
- Documentation of the advisor's record retention policies and procedures concerning its involvement with or usage of social media.
The ACA indicates it believes that the sweep on advisors' use of social media had been undertaken as a means for the SEC to review this evolving area and determine if further rulemaking and/or examination is required. Crain's reports that “The agency's sweep is focused on making sure that advisers aren't using these sites to promise investors returns or engage in other illicit activities, said Adelbert Sanchez, a senior principal consultant at ACA. Mr. Sanchez noted that some of its investment adviser clients have recently received notices of the sweep.” Crain's reports, “More specifically, the agency wants to make sure that unregistered funds, such as private-equity funds or hedge funds, aren't using social-media or social-networking sites to promote their funds,” Sanchez says.
Meanwhile, spokeswoman Nancy Condon says, the Social Networking Task Force of the Financial Industry Regulatory Authority, Inc. (FINRA) plans to meet this month to discuss whether it needs to update its guidance on how advisors should use social networking sites. This discussion will occur just a little over a year after FINRA issued its first guidance on how brokers should use social media (Regulatory Notice 10-06), and has also issued its Guide to the Internet for Registered Representatives.” One may assume FINRA is considering the possibility of supplementing/clarifying its position.
We are aware of firms taking steps to use social media for a variety of business purposes, but are a bit hesitant because of a lack of real clarity as to what is and is not acceptable. For example, FINRA doesn't mention LinkedIn Groups, and area we recommend advisors participate. There may also still be questions about whether the advisor's LinkedIn (and other profiles) need to be approved on a regular basis by their compliance departments because they can be construed as marketing.
In the end, we predict additional rules are made requiring firms to keep additional records of their participation with social networks. It would be extremely unlikely the SEC or FINRA would ban or try to dissuade firms from taking part in social media altogether. We believe that would be a catastrophic loss for the industry as a whole.
