Financial Advisor Compliance: FAQs and the RIA Stands For You Campaign

As you consider your digital strategy and in particular, financial advisor compliance strategies that take advantage of the Charles Schwab RIA Stands For You Campaign, there are a number of questions you may have related to regulatory compliance. The following responses were provided by, Mitch Avnet. Mitch is a Revenue Architects supporting partner and leading industry compliance expert who’s background includes experience with Lincoln Financial Group, Wachovia and PNC Financial.  Need assistance in your compliance program?  Contact us!

Below are some FAQs for compliance and Mitch Avnet’s replies:

What are the compliance considerations with blog?

 The requirements for blogging are consistent with other forms of social media.  While the benefits of utilizing the many different forms of social media will create additional communication streams with customers and increase the visibility of the Registered Investment Adviser / Investment Adviser Rep, it is important to understand the compliance / regulatory  responsibilities and the associated risks associated with Social Media.     Here are some of the major risk factors / components you should understand / weigh prior to establishing / participating in a blog:

• Compliance with SEC record retention requirements  “in an easily accessible manner for a period not less than five years”
• Internal policies and procedures with respect to establishing your own blog / or posting to blogs operated by third parties.
• Internal pre-approval / post review policies and procedures surrounding social media posts
• Internal approach regarding third party posts and the process / controls surrounding testimonials and recommendations (even if unsolicited).
• Information Security / Privacy Concerns – Protecting sensitive client / customer information is mission critical!
• Internal Training and Certification requirements – At the end of the day, training is cheap and is a great mechanism to ensure consistency in your organization’s approach toward Social.

While the above is not an exhaustive list – it is easy to understand how optimizing the use of social media may appear to be onerous and taxing.   The truth is – a strong compliance culture and  control environment that is understood, embraced and operationalized  can and will lead to a greater user acceptance and success rate for your social media efforts.  

Should you use a LinkedIn Company Page? What are the SEC regulations. Any general suggestions?

It’s critical that you move forward with your social media program.     One of the areas where companies fail is when Management doesn’t articulate its strategy for Social Media. So, it’s important to ensure this is vetted prior to “jumping in”.    Having said that, standing on the sidelines is not a strategic approach toward Social.   Once your strategy is understood, you will need to ensure it reconciles to your internal policies and procedures and external regulatory requirements and best practices.   I firmly believe in the “crawl, walk, run” approach to implementation and believe that LinkedIn is a great place for companies to begin executing their Social Media strategy.  Be sure to create the right governance structure for Social Media and ensure your Legal and Compliance support resources have a seat at the table.   They can help you maneuver potential pitfalls and common mistakes.   

Here are some quick “wins” to help you succeed:

• Take the appropriate approach toward training.  Employees must understand how to use Social before you enable their ability to use it.   Work closely with your training partners to develop the right “on boarding” approach.
• Identify Technology solutions that balance the commercial interests of the of the organization vs. Regulatory Requirements
• Understand and address impact on internal resources.  The last thing you want to do is launch a program that can’t be adequately supported!

Can you have recommendations on LinkedIn? What about endorsements?

A recommendation or endorsement from a client could be viewed as a violation of the SEC Investment Advisers Act of 1940 (“Advisers Act”)

Rule 206(4) of the Advisers Act states that advertisements cannot use or refer to testimonials (which are inclusive of a client’s experience or endorsement).    This is applicable to advertising on Social Media outlets such as LinkedIn.

It is important to note that LinkedIn Endorsements can occur in two ways.  The first occurs when a client / prospect endorses a skill that exists in the members LinkedIn profile.   The second occurs when a third party initiates an endorsement for a skill that does not exist on the LinkedIn user’s profile. 

Advisers / Reps should always refer to their organization’s Social Media Policies and Procedures with respect to the permissibility of recommendations and endorsements.   There are a variety of Compliance tools / technologies that are available / being employed by Financial Services organizations disable these features and/or create the appropriate supervisory and compliance controls surrounding adviser / rep activities on Social media.  

What are the compliance issues with people “liking” you”?

The SEC has emphasized that the use of “social plug-in” such as the “like” button on Facebook, could be a prohibited “testimonial” under Advisers Act Rule 206(4)-7.    On a similar note, LinkedIn permits users to accept and post recommendations   With that said, a recommendation posted on LinkedIn by the adviser rep referencing the adviser or firm will likely be viewed as a testimonial – even if unsolicited.

It is important to note that some social media outlets do not allow the “like” function to be disabled.   This further complicates life for a Registered Investment Adviser seeking to allow third-party posts.    Based on this, it is critical that adviser reps have a clear understanding of the Compliance control environment  within their respective organizations and ensure the appropriate infrastructure and processes are in place to monitor for / and remove such posts if / when they occur.

How does using videos from the campaign comply with the SEC rule that prohibits the use of testimonials?

Any statement regarding a client’s specific experience with an adviser or any type of  endorsement is strictly prohibited because due to their selective nature,   These videos are general in nature and do not specifically endorse a particular Registered Investment Adviser or Investment Adviser representative.   Having said that, it is always prudent to escalate these questions to your internal Legal and Compliance support team to ensure you comply with your organization’s supervisory and compliance policies procedures regarding the use of this type of media.