Four Tips to Avoid Problems with the SEC when using Social Media

Four Tips for Using Social Media for Financial Services

Four Tips to Avoid Problems with the SEC when using Social Media

Do you want to use social media to disseminate information about your firm or ideas, but you are unclear about the SEC’s rules for using social media to disseminate investment information?  Is this lack of clarity preventing you from using social media to disseminate information? 

If so, you are reducing your firm’s opportunities for developing credibility and authority with investors.  There are four basic rules that can prevent violations of SEC rules.

First, do not use hyperboles or superlatives to describe your investment strategy and your investment results.  Exaggerating, bragging, and glowing terms will land you in hot water with SEC every time.

Second, be consistent. SEC is now asking firms to list their Social Media Accounts on their Form ADV.  They are using this information to compare the information that you are sharing on Social Media platforms to information that is being disseminated through normal channels – such as newsletters or letters to investors.  With the evolution of social media, they want to make sure that the same rules that apply to a pitch book or marketing also apply online.

Third, many younger investors often think of social media as a channel for distributing information to the public and thus think that social media solves the SEC’s criteria for fairness in timely distribution of information.  The opposite is true, the SEC allows managers to distribute essential firm information through social media if the same information is distributed through your traditional investment sources.  You are not permitted to send out information about your firm through social media unless you distribute the information through your traditional channels.

Firms can only use social media as the primary distribution channel if they first inform their public, primarily investors, that a given social media channel will be the primary source of important information for the company.

Fourth, In 2012, the SEC issued a risk alert indicating that advisers must retain records of their social media communications and warned that advisers' reference to a “like” feature on a third-party website could be deemed a testimonial.

It is important to be consistent with social media, the SEC will flag.

If you still have questions on using social media for your financial firm, contact me at  Vernon Budinger is a MBA from New York University, worked on Wall Street, is a Charted Financial Analyst, and a Chartered Alternative Investment Analyst.