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Social media compliance: What investment advisors need to know

Ed. note: The following post, authored by Yasmin Zarabi  (vice president, legal & compliance, Hearsay Social), originally appeared in Financial Planning.

FinancialPlanning_logoAs social media grows increasingly popular among RIAs, there are still questions regarding testimonials, endorsements and recommendations on social sites. The SEC’s recent guidance allowed for certain use of third-party commentary on social media that would not violate the “testimonial rule.”

Here’s what investment advisors need to know now.

Underlying rule

Since the 1940s, the SEC has forbidden RIAs from promoting client endorsements or testimonials in anything that constitutes an “advertisement.” Rule 206(4)-1 under the SEC Investment Advisers Act of 1940 prohibits an RIA from publishing, circulating or distributing any advertisement which refers — directly or indirectly — to any testimonial of any kind concerning the RIA or any advice, analysis, report or other service rendered by the investment advisor.
But in the digital age, clients can effortlessly use social media to endorse and recommend their advisors with just a few clicks. The SEC has issued a couple of clarifications related to social media. Back in January 2012, it published a National Examination Risk Alert on Investment Adviser Use of Social Media, outlining its concerns about RIAs’ use of social media and describing how clients can provide recommendations and endorsements. More recently, in March 2014, the SEC issued Guidance No. 2014-4 — Guidance on the Testimonial Rule and Social Media — providing further clarity on investment’s advisors’ use of third party commentary on social media.
How could a third-party comment or social media “action” be viewed as a “testimonial” on social media and therefore prohibited? One thing is clear: In its guidance, the SEC says an investment advisor should not invite its clients to post commentary directly on the investment advisor’s own social media site or page.

But what uses of third-party commentary would be permissible by the testimonial rule?

mzl.hcndxsjsLinkedIn recommendations & endorsements

LinkedIn endorsements and independent recommendations about the advisor’s skills should be avoided. An endorsement can occur in two ways: A client could endorse an advisor for a skill that is already listed on his or her profile or a client could initiate an endorsement for a new skill that does not already appear on the advisor’s profile.
To avoid the first scenario, advisors should select “No” for the “I want to be endorsed” feature under the “Skills and Expertise” section on their LinkedIn profile to turn off the feature that allows clients (other LinkedIn users) to “endorse” their skills. In addition, if a connection attempts to add a new skill to the advisor’s profile, the advisor should reject the endorsement to avoid violating the testimonial rule under the Advisers Act.
Recommendations on LinkedIn are completely separate from endorsements. They are free-form written opinions of one’s professional skills, accomplishments or experience. A client can choose to recommend an advisor or an advisor could request such a recommendation.
If advisors receive unsolicited recommendations, they have the ability to review and approve the recommendation before it appears publicly on their profile. Advisors should not accept or request any recommendations on LinkedIn. Advisors may also want to add a preemptive note to the Summary section of their profiles to say up front that they will not accept recommendations or endorsements.

Tweets

Advisors should avoid retweeting any tweet from either a securities research analyst or a client who is providing a testimonial about the advisor’s performance or a product or service of its firm.

LikeSocial media “likes”

Many firms also worry about the interpretation of a like on Facebook or LinkedIn, or having viewers choose to “favorite” a tweet. Likes can mean many things: For example, a like from a third party may simply indicate that a visitor enjoyed an article that was shared or appreciates the artwork on a page.
Much depends on context: The 2012 SEC Risk Alert was careful to state that interpretation of a like as a testimonial is based on the facts and circumstances. A like that an advisor solicits as an indication of a client’s experience with the firm may be construed as a testimonial. However, a like on a photo of an advisor’s new baby may not.

Links to third-party sites

The March 2014 SEC guidance also clarifies how advisors can use third-party commentary on social media. According to the guidance, advisors should not link to commentary on a third-party social media site unless they can demonstrate all three of these:

  • That the advisor has no ability to affect which public commentary is included or how the commentary is presented on the independent social media site.
  • That the commentator’s ability to comment is not restricted.
  • That all comments, both good and bad, can be viewed publicly.

Takeaway: rules for advisors

Financial regulations only prohibit the use of testimonials or endorsements that are related to financial services and the ability to manage money. But advisors can avoid violations of the testimonial rule by following these guidelines:

  • Do not list any skills on your LinkedIn profile.
  • Turn the LinkedIn endorsements feature off.
  • Do not accept any LinkedIn endorsements initiated by a third party.
  • Include a disclaimer on your LinkedIn profile instructing third parties not to endorse.
  • Only share links to independent third-party social media sites on which you have no influence on the third-party commentary and you are not materially entangled with the third-party social media site.
  • Do not cherry-pick favorable client testimonials or endorsements  on your social media pages or any advertisement. If you allow testimonials, you have to show the good and the bad commentary, and not just the favorable comments.

In general, advisors should avoid soliciting client feedback in a way that may frame a Facebook like or a third-party post as a testimonial.
And as a best practice to limit their risks, advisors should prominently display language on their LinkedIn and Facebook profiles indicating that they (and their firms) are not responsible for and do not encourage third parties to post anything on their behalf.
Given that the financial regulations relating to social media are relatively new, and social media platforms continue to evolve in their uses and the ability to effect controls, firms should consider the guidance in light of their organization’s policies for their advisors.

Disclaimer: The material available in this article is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of information provided herein.

The Facebook Business Pages redesign and what it means for financial professionals

Facebook recently announced that it is rolling out a new look for Facebook Pages. The new streamlined design will change the way business pages look for both Facebook users and page administrators.

What’s changing?

Facebook will get rid of the two-column design that splits activity to the right and left hand side of the page on the desktop version of the site. Now, all posts and activity will be displayed in a single column on the right-hand side of the page, similar to the single-column view that mobile users currently see. Information about your business (including a map, hours, phone number, and website) will now be displayed on the left hand side.

This change mirrors updates that Facebook made to personal pages a year ago.

Facbook_New_Page_Layout_March2014

What’s new for admins?

The new layout will provide page administrators even easier access to key admin tools. A new navigation at the top of the page will make it easier to access your activity, insights and page settings. The “Build Audience” menu will also give admins the ability to access their Ads Manager account directly.

In addition to the design changes, a new feature called “Pages to Watch” is being rolled out. This feature lets administrators create a list of other pages to monitor and compare metrics versus your own. This will allow you to easily benchmark your Facebook social presence against competitor pages or any other pages you wish. Specifically, you will be able to compare new page likes, total page likes, posts this week, and engagement this week.

Facebook_Pages_to_Watch_Screenshot_March2014

What about custom Facebook Tabs?

These changes will also make custom Facebook tabs even less prominent, putting them under the “More” dropdown in the top navigation of the page. If you currently have tabs in place, it does not seem like there is anything that you can do to make them more visible.

What about compliance?

These changes should not affect any supervision provided by Hearsay Social. Although the site layout is changing, the information displayed remains the same and the Hearsay Social compliance solution will maintain the same coverage as provided with the previous business page design.

What do you need to do?

There is no action needed for financial professionals using a Facebook business page. These changes will be rolled out in waves to business pages. Facebook did not specify when every page will have the new design, but we are already seeing some new pages with these changes (for example: the Facebook for Business page).

However, since the new design features information about your business on the left hand side (map, hours, phone number, website URL, photos and videos), if you have not filled out some of these fields the left hand side of your page may look incomplete.

Disclaimer: The material available in this article is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of information provided herein.

How should financial advisors and representatives handle Facebook's new star ratings?

Facebook is testing out a five-star rating system that allows users to rate and review a professional’s Facebook business page. These ratings can be made by any user, which means the user does not have to demonstrate that they know the professional or are a customer.
For financial professionals, this poses a question: Does this star rating feature on Facebook present issues for Registered Investor Advisors (RIAs) pursuant to the “Testimonial” Rule 206(4) of the SEC Investment Adviser Act of 1940?
Rule 206(4) states that advertisements cannot “use or refer to testimonials” (which include any statement of a client’s experience or testimonial). This is true of advertisements in print materials as well as advertising on electronic forums such as a Facebook Business Page.
The SEC’s staff has consistently interpreted testimonials to include a statement of a client’s experience with, or endorsement of, an investment adviser. Therefore, the use of “social plug-ins” such as the new Facebook “Star Ratings” feature could be deemed a “testimonial” under the Advisers Act.
While members should consult with their own legal and compliance departments as to the application of this feature with regulations restricting advertisements and other communications with the public, we suggest that RIA’s with a Facebook page should not accept ratings or reviews on the social network.
Facebook has not made it possible to block this new ratings feature, but RIAs can use a workaround to prevent their page from receiving star ratings. This workaround requires the financial professional to remove the map of business location (see illustration  and steps below). Please note that by doing so the map of the business location will not appear on the business page.

  • On your business page, go to the “About” section under the logo.
  • On the next page, hover over the “About” section and click “Edit.”
  • To the right of the “Address” section, click “Edit.”
  • Uncheck the box underneath the map that says “Show this map on your page and enable check-ins.”
  • Click “Save Changes”

Hearsay Social has indicated to Facebook that this feature might present a compliance risk for RIAs, and we are working with them on behalf of our clients to advocate for a solution that allows the map, but does not prompt users for check-ins or reviews.
If you have any additional questions about compliance on social media or Facebook star ratings, please feel free to leave a comment below or contact us directly.
We will keep you posted as more features change!

Disclaimer: The material available on this blog is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of the information provided herein.

Why you should care about Facebook’s “Edit Post” feature

Prone to typos? You’re in luck!

As you may have noticed, Facebook has slowly been rolling out a feature that allows users to edit posts on the social network after they have been posted. In the past, if you wrote something with a typo or hit “Post” too quickly, the network required you to delete the post and recreate it from scratch, losing any Likes or engagement that the post had earned. With the new “Edit Post” feature, fixing typos or making changes is simpler than ever before.

This image demonstrates the new dropdown menu option, “Edit,” where you can edit the contents of a post:

Here is the edited post, with the notice “Edited” appearing next to the timestamp:

Anybody can view the “Edit History” to see how the user has altered the original post:

Although the new feature allows users to fix mistakes without deleting a post or activity, editing posts presents a compliance risk for regulated industries.

By editing a post, a user could potentially pull a “bait and switch,” changing the nature of the post after friends or fans had already engaged with the original post. Here’s a fairly innocuous example: a user could share a post that reads “Like if you love the San Francisco Giants,” gather likes and affirming comments, and then edit the original post to read “Who hopes the Giants lose the series?”

In regulated industries, however, edited posts could pose a more serious compliance risk, because a quick edit could change a post from something approved by compliance to something inappropriate. Some companies leveraging third-party compliance tools may have trouble capturing this change, but Hearsay Social already has a solution in order to ensure there is no lapse in compliance coverage. Additionally, we’re working closely with Facebook in order to build an easier-to-use solution that enables compliance users to efficiently review post-edits.

Today, Facebook addresses the potential for a “bait and switch” by marking the post as “Edited” and letting viewers access the history of any changes made to the post. Facebook believes that providing this audit trail will minimize such abuses of the edit feature. In a world where authentic engaging content wins out, it makes sense: anybody who would abuse this feature to mislead followers or friends by editing a post would quickly lose followers and engagement which are not easy to earn back.

In recent months, Facebook has been slowly providing users with more editing capabilities across a variety of content, including the ability to edit comments and captions on photos. This new ability to edit posts will also be slowly rolling out to all users via the Web and Android devices.  We expect iPhone support for editing posts to follow soon.

Stay tuned to our blog for more important updates to Facebook and the other social networks!

Disclaimer: The material available in this article is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of the information provided herein.

Social media compliance updates from FINRA’s Advertising Regulation Conference

As announced last June, new FINRA Communication Rules, including FINRA Rule 2210 (Communications with the Public), have been approved by the SEC and will take effect February 4, 2013.  These rules, and related regulatory notices, provide important guidance for firms on blogs and social networking websites.
At the most recent FINRA Advertising Regulation Conference in Washington DC, Hearsay Social heard FINRA and industry experts provide useful updates and clarifications on Rule 2210 and social media compliance.
Some of the key topics covered include:

  • Pre-review requirements: Does a registered representative’s first social media post or their first interaction in a new conversation need to be pre-reviewed by their firm?
  • Deleting third-party comments: If a firm deletes third-party comments from its social media site, does that imply that it is has endorsed the remaining comments?
  • Third-party content: What are a firm’s obligations when a registered representative tweets a link from a business social media site to an article on an independent, third-party website?

Pre-review requirements

Across the financial services industry there has been an open question about whether dynamic content needs to be pre-reviewed. Reaffirming Notice 2210 at the conference, FINRA said there is no requirement for the pre-review of social media interactions.
The SEC-approved “Communications Rules” lay out an exception to the preapproval requirement for social media: firms and reps will not need to have a principal approve the content of a status update, post, or tweet prior to it being posted on an online interactive forum such as a LinkedIn group, Twitter feed, or Facebook page. Additionally, tweets and posts are not considered static content under 11-39 and therefore need not be approved.
Hearsay Social has and will continue to offer pre-review solutions for organizations seeking an extra level of security and as always the supervision and retention/retrieval of all social media communications are standard.

Deleting third-party comments

At the conference, FINRA representatives said that deleting a third-party post from a firm’s sponsored social media pages does not mean that the firm is endorsing the remaining comments. Firms are responsible for the supervision and retention of all comments, including deleted comments, but it is up to their good judgment in deciding which comments need to be removed.
It was also mentioned, however, that firms only deleting negative comments (and leaving all positive comments) could face repercussions. For this reason, comment deletion should be an action reserved for very specific scenarios in which the firm finds posts to be illegal, unprofessional, or inappropriate. The ability to delete concerning content is important for protecting a firm’s brand and to aid in this effort.
Hearsay Social offers real-time remediation functionality, automatically removing content that contains a specific keywords or phrases and maintaining a record of any deleted conversations after removing them from the public site.

Third-party content

In the case of a representative publishing a link to a third-party article, FINRA advises that the rep’s organization is responsible for the content in that article.  The organization is not responsible for the entirety of the content available on that site hosting the article, but it should be aware of what the specific article contains.
Hearsay Social offers a number of workflow and approval solutions that allow organizations to review articles and other content prior to being published by representatives of the organization.
The FINRA Rules, coupled with the information presented at the conference, indicate that the FINRA staff has a continuing and evolving grasp of the real-time nature of social media. We believe these updates allow organizations to better empower their employees on social media while remaining compliant.

Disclaimer: The material available on this blog is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of the information provided herein.