The SEC to Require Social Media Disclosures on Form ADV

Craig Pollack | Oct 25, 2016

The SEC to Require Social Media Disclosures on Form ADV

As we all know, Registered Investment Advisors have long been required to register with the Securities and Exchange Commission using the Form ADV. But starting next year, RIAs will have to address the latest requirement added - to report their use of social media accounts on their Form ADV.

Item 1.I. of Part 1A of Form ADV currently asks whether an advisor has one or more websites and Section 1.I. of Schedule D requests the addresses of each website.  But starting on Oct. 1, 2017, the SEC will amend Item 1.I. to also ask whether the advisor has one or more accounts on social media platforms, such as Twitter, Facebook or LinkedIn as well as the address of each of the advisor’s social media pages.

Be prepared - the SEC may use this information to help them prepare for audits of Investment Advisors and then further to compare information that advisors disseminate across different social media platforms as well as to identify and monitor new platforms.  In addition, they see this (change) as an added way for current and prospective clients of the advisor to use this information to learn more about them as well as make more informed decisions regarding the selection of advisors in general.

One of the issues with drawing the lines around social media responsibilities is the very nature of it being an unstructured and uncontrolled medium.  There are many possibilities of where an Advisor could be mentioned and have no control over the content let alone even be unaware of them being mentioned.  Because of this key aspect, the SEC has stated within Item 1.I. of Part 1A and Section 1.I. of Schedule D that “the required reporting is limited to accounts on social media platforms where the advisor controls the content.” Further, the SEC has agreed to limit required reporting to accounts on “public facing social media platforms” used to promote the advisor’s business.  “We did not intend to require reporting on information posted on an advisor’s internal social media platform or information not intended to promote the advisor’s business to potential clients (e.g., information posted on a job board intended to attract job applicants).”

To avoid the risk of penalties, advisors need to add social media to the review process of their compliance procedures and risk exposures prior to Oct. 1, 2017 when the new rule goes into effect.  As such, and if you’re not already doing so, RIAs should seriously consider adding social media archiving to their technology arsenal.  There are a number of platforms out there to do this, but the one with the most penetration in the market is clearly from Smarsh.  Their solution provides the benefits of a unified, search-ready repository and interface for powerful e-discovery and automated, policy-based compliance supervision for all social media communications.

The use of social media is only going to grow in the coming years and, potentially, exponentially.  So, advisors need to shift their mindset away from prohibition and move towards how to most effectively manage the risk.  And we believe the best way to do this is by leveraging technology to automate the review process as much as possible.

For more information about the ruling itself, you can see it here: https://www.sec.gov/rules/final/2016/ia-4509.pdf

What is your firm's position on using Social Media? Do you have a documented policy around its use? And what is your approach to managing and archiving your posts? Please share you thoughts and experiences in the Comment field below.

And to follow-through on the concepts introduced here, be sure to download your free guide, Investing in High Net Worth Clients: The LA Investment Advisor's Guide to Using Technology to Manage and Grow Your Firm.

 

Free Guide for Los Angeles Investment Advisors: Download Investing in High Net Worth Clients: Using Technology to Manage and Grow Your Firm

Author

Craig Pollack

Craig Pollack

Craig is the Founder & CEO of FPA Technology Services, Inc. Craig provides the strategy and direction for FPA, ensuring its clients, business owners, and key decision makers leverage technology as efficiently and effectively as possible. With over 25 years of experience building the preeminent IT Service Provider in the Southern California area, Craig is one of the area’s leading authorities on how small to mid-sized businesses can best secure and leverage their technology to achieve their business objectives.

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