Social media is everywhere, and it seems there is a new social platform every day. We have seen investment advisers embrace this innovation as they look to social media to build their brand and, in some cases, drive business. There are so many ways to connect with followers – posts, live streams, real-time feeds, disappearing acts, short videos, community-based platforms such as Public.com and Reddit, and discussion rooms on Clubhouse.
But with the wide adoption of social media comes regulatory scrutiny. Advisers are at a crossroads, with the compliance date of the U.S. Securities and Exchange Commission (SEC)’s new marketing rule set for November 2022.
The current advertising rule was adopted by the SEC in 1961 – 60-plus years ago – when computers were unheard of and the internet didn’t exist. Will the SEC’s new marketing rule set us up for another 60+ years? Or will ever-evolving technology push the SEC to act faster? Will social media someday be replaced by alternate reality (AR), virtual reality (VR), the metaverse and web3? Only time will tell.
Key points for advisers to consider
In the meantime, here are some key points advisers should consider on their usage of social media with the impending new marketing rule:
- Presently, advisers may choose to adopt the new marketing rule entirely, but may not cherry pick what works for them under the new marketing rule and pair it with elements of the old advertising rule
- With pages like /wallstreetbets going strong, the SEC commissioner signaled that the agency’s focus is on fraud, misleading other investors and manipulation of the markets – not free speech. Social media communication has also given rise to advisers conducting data scraping or purchasing data obtained from social media platforms
- Live and oral communications are excluded under the new marketing rule, but scripted remarks are included. If the adviser reposts a recording and the content offers investment advisory services, then the post would bring these in scope
- Branded content and general market commentary that don’t offer advisory services are not considered marketing
- If an influencer or other third party posts about the adviser on their social media account, it will be considered the adviser’s marketing if the adviser was involved in preparing the content (entanglement), or if the adviser explicitly or implicitly endorsed or approved the content (adoption). Both entanglement and adoption concepts are a ‘facts and circumstances’ determination
- Merely permitting the use of ‘like,’ ‘share’ or ‘endorse’ features on social media platforms would not implicate the rule. However, if the adviser does things like edit the comments, prepare the comments or modify the presentation of comments so that positive comments are prioritized, then the comments will be attributed to the adviser
- Advisers are accountable for third-party content linked by the adviser’s social media page
- Posts made by employees on personal social media accounts will not be considered the adviser’s marketing if the adviser has adopted policies and procedures prohibiting such communications, conducted periodic training, and reviewed content on personal social media pages
- Testimonials and endorsements are allowed under certain conditions. Advisers compensating influencers or bloggers, for example, will need to re-evaluate their agreements with such ‘promoters,’ confirm the required disclosures are included, and that these promoters are not ‘bad actors’ subject to disqualification
- Implement a ‘neutral’ policy based on pre-established, objective criteria to remove inappropriate content
- Archive social media pages for monitoring and to comply with record retention requirements
It’s time to take action
The following is a list of action items that CCOs can complete to prepare for the compliance deadline:
- Conduct a thorough review of the firm’s marketing and investor relations efforts. For example, mapping out direct vs indirect; existing vs prospective clients; clients vs private fund investors; existing services vs offering of new advisory services; one-on-one vs more than one; contains hypothetical performance or not; oral vs written; the medium utilized for marketing; materials used; how materials are disseminated, etc.
- Refine policies and procedures to incorporate additional compliance measures where applicable, and provide specific training to the marketing team
- Meet with the marketing team to determine the social media platforms in use (e.g. Facebook, LinkedIn, blogs, Twitter, Instagram, Clubhouse, etc.); understand content creation and distribution of content on applicable platforms; identify third parties involved in content creation and dissemination of materials; and ensure requirements are being met by content creators and the marketing team
- Work closely with the marketing team to develop social media guidelines for the firm and its employees
Speak to IQ-EQ
IQ-EQ’s U.S. team is ready to assist clients on implementing the SEC’s new marketing rule. For more information, please don’t hesitate to get in touch.