Over the last several weeks, the SEC staff made it abundantly clear that registered investment advisors must address social media communications in their compliance programs.
In particular, investment advisors should consider the frequency of monitoring content. The SEC staff said that “after the fact” review may not be sufficient. That is, the SEC may, ultimately, require that certain communications be reviewed before posting. Accordingly, the SEC would require procedures in a registered investment advisor’s compliance program to consider if the content should be approved before or after posting.
Registered investment advisors must also dedicate compliance resources that are sufficient to this endeavor, or consider employing outside monitors for these social media outlets. Registered investment advisors must also adopt policies to address conducting firm business on personal or third parties sites, and if the social media sites pose any information security risks.
Additionally, these procedures must also address if client testimonials are posted on social media sights, including if it is acceptable, the client’s experience with or endorsement of an investment advisor. Thus, the use of “plug-ins” or a “like” button may be testimonial in nature, and may not be permitted under the Investment Advisors Act.
We strongly urge investment advisors to consider these items in assessing their compliance programs and note that counsel may be able to assist in revising these programs to comply with these requirements.