This is the first half of a two-part series looking at how the
Securities and Exchange Commission is (over)reacting to the popularity
of social media. The first piece looks at how the SEC wants to treat
sites such as Facebook. Part two will assess what SEC-regulated advisory
firms can do to appease the agency … and how those firms are also
overreacting.
If you value your privacy, you probably shouldn’t work for a registered investment adviser (RIA) or any advisory firm regulated by the Securities and Exchange Commission.
Earlier this year, the SEC completed a review of how registered investment advisers use social media, and based on an alert issued by the agency, two things seem clear. First, the SEC still has a long way to go before it can claim to be an expert on social media. Secondly, the agency plans to compensate for its incomplete understanding of the medium by pushing RIAs to clamp down on how their advisors utilize forums such as Facebook.
The SEC doesn’t mince words – it distrusts social media. So what does the agency plan to do about it? They overreact, as they often do, by requiring RIAs to “adopt, and periodically review the effectiveness of policies and procedures regarding social media in the face of rapidly changing technology.” The SEC is passing the buck to the RIAs, making them responsible for policing social media use without giving then any guidance on how to do it.
Well, sort of. The agency does provide a laundry list of things it thinks RIAs should zero in on: usage guidelines, content standards, monitoring, etc. The SEC provides much verbiage, but little guidance, on the problems it sees in social media. The SEC in many aspects is guilty of a “lack of specificity” that “may cause confusion” to RIAs.
I highlight this verbiage, since it is also how the SEC chose to describe existing social media policies at RIAs. The SEC is greatly concerned about so-called testimonials, or a “statement of a client’s experience” or endorsements. The SEC really pays attention when an endorsement is disbursed to 40 or more people. It seems that the agency is critical of RIAs that choose to use social media for things such as touting a pleasant customer experience. It could violate securities rules.
To make matters worse, the SEC has decided to strike fear in the hearts of RIAs, including talk of violating the Advisors Act Rule, without providing meaningful guidance. What is an RIA to do? We’ll take a look at that in our next column.
*****
If you value your privacy, you probably shouldn’t work for a registered investment adviser (RIA) or any advisory firm regulated by the Securities and Exchange Commission.
Earlier this year, the SEC completed a review of how registered investment advisers use social media, and based on an alert issued by the agency, two things seem clear. First, the SEC still has a long way to go before it can claim to be an expert on social media. Secondly, the agency plans to compensate for its incomplete understanding of the medium by pushing RIAs to clamp down on how their advisors utilize forums such as Facebook.
The SEC doesn’t mince words – it distrusts social media. So what does the agency plan to do about it? They overreact, as they often do, by requiring RIAs to “adopt, and periodically review the effectiveness of policies and procedures regarding social media in the face of rapidly changing technology.” The SEC is passing the buck to the RIAs, making them responsible for policing social media use without giving then any guidance on how to do it.
Well, sort of. The agency does provide a laundry list of things it thinks RIAs should zero in on: usage guidelines, content standards, monitoring, etc. The SEC provides much verbiage, but little guidance, on the problems it sees in social media. The SEC in many aspects is guilty of a “lack of specificity” that “may cause confusion” to RIAs.
I highlight this verbiage, since it is also how the SEC chose to describe existing social media policies at RIAs. The SEC is greatly concerned about so-called testimonials, or a “statement of a client’s experience” or endorsements. The SEC really pays attention when an endorsement is disbursed to 40 or more people. It seems that the agency is critical of RIAs that choose to use social media for things such as touting a pleasant customer experience. It could violate securities rules.
To make matters worse, the SEC has decided to strike fear in the hearts of RIAs, including talk of violating the Advisors Act Rule, without providing meaningful guidance. What is an RIA to do? We’ll take a look at that in our next column.
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