Thinking about engaging in a financial social media campaign? Be careful… A recent follow-up letter to a registered investment adviser examined by a state regulator gives clues about the scrutiny firms can expect as they ramp up financial social media communications.
In the letter, the regulator said the investment adviser did not create and outline proper procedures for financial social media use and did not adequately train employees. Simple guidelines, however, such as what types of posts were allowed or not, did not exist. Highlighting the need to have a financial social media policy in place and understood by all employees.
The firm, whose employees often used LinkedIn and Facebook, was also delinquent in not checking up on the activities of their employees, even though it hired an outside company to save messages employees sent through the sites in their financial social media outreach efforts.
In their financial social media campaigns, investment firms are creating their own problems, chiefly by not having policies governing financial social media activities in place.
Another issue for compliance professionals is crafting a clear financial social media policy to require prior approval of employees’ posts to the site, or spelling out procedures for ensuring that employees are acting in the best interests of their clients, in the event employees post investment recommendations.
An ongoing issue for advisers engaging in financial social media forays is the uncertainty over whether investors who click the “like” button on an adviser’s Facebook pages are effectively giving testimonials, or a positive endorsement about the adviser. Similar questions also apply to recommendations clients may write for an adviser on professional networking sites, such as LinkedIn.
Use of client testimonials about an adviser’s investment skills is a heavily regulated area. The practice is severely restricted for brokerages and not even permitted for registered investment advisers. Still, there is little clarity from regulators about whether they may construe a “like” as a “testimonial” in the world of financial social media programs. The SEC has not provided much help in this area either.
It is anticipated that at some point in time, the regulatory commissions will figure out whether “like” counts as a testimonial. Until such time, financial services organizations should have a detailed and strictly-applied financial social media policy in place. In addition, they should go through great pains to document every aspect of their financial social media outreach activities.