Are you unintentionally breaking SEC rules through Social Networking?

This interconnected web now woven across the world offers many benefits – and many potential perils. While we can now easily connect with long-lost friends, we must also be wary of who is viewing our information. While we can shop online, we may run the risk of compromising our account information. And while the world of Social Networking offers us many ways to keep in touch and share information, it has some very real potential pitfalls for Financial Advisors.

Still, according to a survey conducted this year by American Century Investments, 55% of Fiancial Advisors are now on LinkedIn, and over 71% have either a personal or business profile on Facebook.

What could get them into trouble?

For starters – testimonials. The SEC has, historically, adopted a very sweeping view on what constitutes a testimonial. If you have a profile on LinkedIn, you MUST be aware that personal recommendations posted to your profile DO count as testimonials and/or advertising – and you may be called out by SEC examiners. Simple comments on your Facebook profile or Twitter account may also be considered a violation.

Another big issue with Social Media use is retention. How to you retain social media documents in a way that is SEC-compliant? How do you capture and archive information? Currently, exchanges on social media are treated by regulators in much the same way as a live seminar would be – and retention of all records IS required.

While there is talk of the SEC and FINRA needing to re-evaluate rules to better accommodate the world of social media, for now – be careful. You basically have three options …

1) Take the time to understand and carefully update all your social media settings to ensure you’re not violating any current regulations. (If you go deep enough into most Social Media settings, you can disable or hide many features.)

2) Turn it all off and wait for the SEC to come up with clear, simple guidelines.

3) Make use of one of the new services popping up to help Financial Advisors be compliant in Social Networks. For example …

SocialWare’s “Compass” product:

Smarsh’s Social Media Compliance and Archiving:

In 2010, Aite Group conducted a study of registered investment advisors and found that those who use Social Media experienced an increase in clients and a boost in both revenue and assets (more so than those who were not utilizing Social Media channels).

Clearly, there is great potential for the industry in these tools – if only we can find a way to successfully tame (or at least learn to coexist with) this wild new beast.


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