I’ve worn many hats at a SaaS Fintech Co., but what I enjoy most is building connections and improving compliance. Hope you enjoy my stories.

Feb 12, 2016

Like Social Media Compliance in 5 Tweets

1. Recognize that social media is a key business tool

“You have to be on Social Media, or you don’t exist”, using social media is no longer about obtaining an operational edge, but critical to keeping pace with the competition.

According to a fall 2015 Putnam Investments survey:

· 81% financial advisers use social media for business purposes, which is up from 75% in 2014

· 79% of respondents gained clients via social media, up from 66% in 2014

· $4.6M was the average asset gain from clients obtained through social media

· Adoption rates for the major social media sites are: 70% LinkedIn, 47% Facebook, 42% Twitter

· Other social platforms pale in comparison to those three

A Finect, Inc. survey had similar findings. Some key findings include:

· The most important social media interaction with advisers, according to investors, is sharing trending investment or personal finance news

· The most important feature for investors when choosing advisers through social media, is an adviser's availability to answer questions

· Investors age 44 or younger more likely to connect with their advisers on social media than those over 45

· Emerging affluent investors (Between $100k and $1M) use social media more than mainstream and high net-worth investors do

· Female Investors are 11.5% more likely than male investors to connect with their advisers on social media

· Investors who connect with their advisers on social media tend to be satisfied with the level of access to their advisers

The findings regarding sharing news and answering questions may raise a note of concern for compliance officers, while the findings regarding the connections gained by young, emerging, and female investors — all much sought after cohorts — will ensure social media continued use.

Your business is using this and will continue do so with more sophistication and activity.

2. Know the social media regulations

Fortunately when it comes to social media, “there is nothing new under the sun” for compliance officers. Social media needs to follow similar rules as traditional media. It’s just a different platform. The same concerns over suitability, general solicitation, and performance claims persist here. The regulators are focused on the content, not the medium.

Two key sources of SEC guidance are from a March 2014 IM Guidance Update regarding the Testimonial Rule and a January 2012 SEC Risk Alert on Social Media. They can be found here:

http://www.sec.gov/investment/im-guidance-2014-04.pdf https://www.sec.gov/about/offices/ocie/riskalert-socialmedia.pdf

FINRA Regulatory Notices 10–06 and 11–39 apply a similar rubric as the rules for paper-based communications and rely on FINRA Rule 22–10 as the basic architecture. They can be found here:

https://www.finra.org/file/regulatory-notice-10-06

https://www.finra.org/file/regulatory-notice-11-39 http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=10648

This regulatory regime, puts social media into a retail communication bucket and stresses the importance of preapproval, record keeping, and communication channels. The same factors for what constituents advertising apply here.

Other than the above, the regulations you need to know for social are the same as for traditional.

3. Ensure social media compliance

The shorter your social media policy is, the more likely it will be read and followed by your employees. Proceeding with idea that the same basic rules apply to social media as traditional media should make compliance easier. As with any policy, you must craft a policy that reflects your employees, clients, and business.

To be sure, some of the technical features of certain platforms such as “likes”, endorsements, and re-tweets, may present some nuances in terms of applying the traditional rules to new media. Here are some quick rules of thumb:

· Don’t post anything you don’t want to see on the page of the Wall Street Journal

· No posting about performance

· No posting about specific companies or investment strategies

· Capture all social media posts via 3rd party software and test retrieval regularly

· Stay current with new social media features

Some nuances about social media to keep in mind:

· No links to 3rd Party Media — could be seen as recommendation or solicitation

· Endorsements and likes — best to consult with outside counsel or compliance consultant

Review and remove old, stale content. The facts may have changed and the content no longer accurate.

A 2015 IA survey found that despite no SEC rule on social media compliance:

· 90% of IAs surveyed have adopted formal written policies and procedures to govern the use of social media by employees.

· 83% do not review and retain employee emails from personal or social media hosted accounts on company issued computers and devises

· 73% do not permit employees to use social media email accounts for business purposes

· 70% test compliance with the firm’s social media policy

· 62% allow personal email accounts on company issued computers and devices

· 47% prohibit the use of personal social networking sites for business purposes

If your policy is easy to understand and fits your firm, it will be easier to implement.

4. Prepare for your next exam

Social media will be an area of examination focus. The SEC & FINRA appear to be in an informational gathering mode area and it would seem that the recent focus on marketing materials will carry over here as well. Some exam prep tips:

· Hire a competent social media compliance vendor

· Conduct a self-audit with your social media compliance vendor

· Engage a compliance consulting firm for an outside mock audit

· Keep a list of sites and handles used for business purposes

· Frequently train your employees on social media

· Institute a preapproval system

· Document your social media checks and searches

· Test your retrieval keyword searches

· Keep your training materials up-to-date

· Save sample postings to show examiners

· Make sure your written policies match your actual practices

There have been enforcement actions in this area, which shows the regulators will monitor social media. However, the conduct in these cases seems egregious and would constitute a flat out violation if traditional media was used. For example:

Keiko Kawamura (April 8, 2014) an SEC administrative proceeding against an adviser who misrepresented experience and performance via twitter.

Mark Grimalidi (January 30, 2014) SEC settlement against an adviser who cherry picked past performance via twitter.

Jason D’Amato (June 21, 2013) SEC settlement over misrepresentation of credentials on firm website.

Charles Matisi (September 11, 2013) FINRA settlement over Facebook post that exaggerated details of drug company, not fair and balanced, and didn’t disclose ownership of 10,000 shares of the company.

Use a vendor to automate, but you must conduct due diligence and test thoroughly because this will be an area of your next exam.

5. Use Social Media

You may feel more comfortable handling personal trading than cybersecurity or social media. Part of that is because personal trading is more familiar. You’ve probably done some yourself. The best way to learn is by doing. By connecting with your employees through social media, they’ll know you can see their posts.

Social media also offers a venue for your learn more about your profession and network. For everything you’d want to know about social media marketing, I recommend this link — 190 Must Read Social Media Marketing Articles — it’s divided up by platform, so you can narrow down based on your business’ use. To get started read this article on LinkedIn tips for newbies.

The best way to learn, is to do — get on LinkedIn and Twitter today.

Actionable Advice

Your business is using this and the examiners will be looking for it, so nothing is the worst thing you can do. If you are using social media great, the topic shouldn’t be so scary. If you are not then get in the game! By analogizing this topic to a topic you already know — marketing compliance for traditional media, the topic is much less daunting. The basic skills and approach you take for many other compliance issues apply here. It’s no surprise that the top five areas for social media compliance are:

· Develop Written Policy

· Record Communications

· Monitor Channels / Platforms

· Train Employees

· Supervise Employees