Compliance 2.0: Social Media

Social media offers an opportunity to build your brand. But send a seemingly innocent tweet – or “like” the wrong Facebook page – and you could step into a regulatory minefield.

This double-edged sword has made social media the “hottest” compliance topic—ahead of insider trading, advertising/marketing and valuation, according to an Investment Adviser Association (IAA) survey of compliance professionals (see “Social Media, Insider Trading Top Issues in Compliance Testing”).

As of this year, 80% of registered investment advisers (RIAs) have adopted formal, written social media policies, up from 64% in 2011 and 43% in 2010. Fifty-four percent of firms are prohibiting the use of personal social media sites for business purposes, and 52% are reporting that their social media testing has increased since 2010.

These statistics raise the questions: What are some of the compliance issues advisers might encounter when using social media, and what should firms do to prevent regulatory infractions?


Should a LinkedIn page aggressively promote a firm or an adviser, it may be considered an advertisement.

“Say you have a LinkedIn profile page and it just has your business card information, that’s one thing,” said Joanna Belbey, a social media and compliance specialist at Belmont, California-based Actiance Inc, a provider of social media compliance software (see “The Principal Selects Social Media Monitoring Platform”). “But if it goes on to talk about the firm, why it’s a great firm, and why [the adviser is] so terrific, then it does become an advertisement.”

If LinkedIn pages are considered advertisements, recommendations present a problem. Chad Bockius, chief executive of Austin, Texas-based Socialware, another provider of social media compliance software, told PLANADVISER, “Recommendations are clearly testimonials, and the fact you have testimonials living inside an advertisement is a violation of the Advisers Act of 1940.”

Messages between LinkedIn members – inMail – can also be problematic, which is why some firms have their advisers use prewritten notes for prospecting and answering questions, Belbey said.




Like LinkedIn, advisers can have personal profiles on Facebook listing their professional affiliation without approval from a registered principal, but only if they don’t use their page for business communication, Bockius said.

Facebook’s “like” feature presents a challenge, however. By “liking” a post, an adviser is essentially commenting on, even endorsing third-party content, which may create a compliance issue.

“If they like a post to the Cardinals winning the World Series, that would be quite all right,” Bockius said.  “But if they liked a post… predicting that Facebook stock was going to go up to $40 after they announce earnings, that could create an issue around being suitable, fair and balanced. All those things come into play the second you press that little button.”


Registered representatives who work for a broker/dealer have to remember to provide suitable recommendations to clients, while investment advisers working for a registered investment advisory firm have to provide not just suitable recommendations but those that are fiduciarily responsible, as well. This presents a challenge on social media outlets like Twitter.

When advisers communicate with clients by phone or e-mail, they know exactly who they are dealing with and what would be suitable for them. However, interactions on social media networks are often open for the world to see.


“On social media, you don’t know who your followers are or who they could be passing that information around to,” Belbey said. “And you can’t possibly have a good clear understanding of their needs to make appropriate recommendations.”

Another issue on Twitter is retweeting third-party content such as newspaper articles. Through the Securities and Exchange Commission’s (SEC’s) concept of “adoption and entanglement”, firms can become responsible for third-party content by a retweet, which could be construed as an endorsement.


Firms must have a social media policy that is compliant with SEC and FINRA regulations, test it and be able to prove to the regulators that they have done so. For a firm that prohibits social media, that can be easy as a web search.

However, if a firm allows use of social media, it needs to monitor it and block access to certain features, which can be problematic for compliance.

Software, like the kind Bockius’ and Belbey’s companies provide, can block access to the “like” feature on Facebook or the recommendation feature on LinkedIn. It can also set up an approval process and be especially beneficial for larger firms that have to review lots of information.

“If you think about a firm with 10,000 advisers and all the LinkedIn profiles that need to be approved, that can be a pretty daunting task,” Bockius said. “Having the software to streamline that process is really critical.”


Training and Branding 

The SEC, FINRA and the Investment Industry Regulatory Organization of Canada (IIROC) require firms to demonstrate that regulated persons have had training on the appropriate use of social media as it pertains to rules and regulations, according to Belbey.

A very senior financial adviser might require more technical training, Belbey said, while a member of Generation Y may very well be familiar with how to use social media “but need to be trained on what’s appropriate on social media as it pertains to their livelihood.”

And because of the tremendous reach of social media, training should extend well beyond compliance to how to harness its power. “The best, most successful campaigns go a step further where they not only show the registered people how to build your network, how [to]  engage with your followers,” Belbey said.

Some firms take more steps to manage their brand. Belbey knows one firm that hires photographers to take official profile pictures of its advisers.

“They want their adviser against a blue background, they want them to wear a suit and a tie or a dress, they really want to control the image from the ground up,” she said.


Regulatory Guidance 

Both social media compliance industry insiders agreed that regulators—especially FINRA—are doing a good job in issuing guidance.

“I give them [FINRA] great credit for being the first of all regulators to provide guidance on social media notice,” Bockius said, citing the organization’s notices 10-06 and 11-39, both of which provide guidance and require firms to archive business social media communications. “Of all the regulators, they’ve been the most aggressive in trying to understand the issues related to social, trying to understand the challenges [advisers] are still having as it relates to using social for business.”

While regulators may be working hard to understand the issues, Bockius does not believe they are overly aggressive on enforcement.  

“I don’t think regulators are on a witch hunt, because they realize this is an emerging field,” Bockius said. He believes that firms are in a sort of grace period, and they should work with advisers and software companies like his to work out compliance issues, especially since social media and its supporting technologies continue to evolve at an ever-increasing rate.

“Unfortunately, you can’t just set one set of policies and one type of training and let it run. You’re going to have to go back and adopt your policies and adopt the training based on the changes of the networks,” Belbey said.

But advisers shouldn’t fear social media because of compliance. They should embrace it.

“The value social creates for an adviser’s business is so huge – it’s monumental,” Bockius said, which is why he urges advisers “to get social and get social now.”