Web Development and Regulatory Aspects

Part III in a series analyzing social media and RIAs

In Part I, we discussed some of the perils of social media use relative to the RIA business model. But, we also identified two legitimate uses, in our opinion, of social media for RIAs – content distribution and social networking. Part II dealt specifically with the mechanism of creating media rich content and using the segregative and real time distributive capabilities of Google+ to serve that content to your clients across a variety of consumptive devices, including mobile 3G/4G/WiFi devices. In this final installment, I am going to discuss the how, where, and why of using the social networking functionality of social media to spread your message to a network of individuals who otherwise will likely never know your firm even exists.

The Like Button Changes Everything

In Part I, I said the following:

I know that I’m not using my Facebook time, the small amount I do allocate for ‘Facebooking’, to search for professional service offerings from various companies advertising or promoting their Facebook pages.

The whole idea of professional services firms ‘Facebooking’ has such an air of cheesy consumerism to it…

But if that same content, instead of being self promoted by a firm on its Facebook page, is shared with me by a trusted Tweeter, Facebook friend, LinkedIn connection, or Google+ circle member, I am more apt to consider that content, particularly if I find it relevant. Again, we believe your clients and prospects, found both inside and outside your target audience, will react in a similar manner. This is the nature of social networking within the social media framework. And it’s all made possible with Javascript widgets that you are able to embed in your website.

These widgets are made available from countless social media platforms, but the most appropriate ones for use by RIAs, in our opinion, are provided by Twitter, Facebook, LinkedIn, and Google+. These buttons permit your website visitors to share your firm’s website content through their social media networks, using their social media accounts, in a very dynamic manner. As you can imagine your firm’s exposure has the potential to instantly increase exponentially solely from the use of these widgets.

Avoiding A Regulatory Nightmare

Although we do not provide legal advice, we do provide compliance guidance vis-a-vis our clients’ installed technology, operational procedures, and marketing efforts. And we have been telling our clients for the past few years to expect aggressive enforcement of securities laws in these three areas as the SEC attempts to “save face” in light of recent, widely known, regulatory failures. Reading through the recently released SEC risk alert on social media use by RIAs, it is pretty clear the SEC intends to regulate the flow of information authored by your firm and promoted via your firm’s social media pages in the strictest possible sense. Let’s take a look at a couple of key paragraphs extracted from that document:

RIAs that communicate through social media must retain records of those communications if they contain information that satisfies an investment adviser’s recordkeeping obligations under the Advisers Act. In the staff’s view the content of the communication is determinative. A firm that intends to communicate, or permit its IARs to communicate, through social media sites may wish to determine that it can retain all required records related to social media communications and make them available for inspection.
The term “testimonial” is not defined in Rule 206(4)-1(a)(1), but SEC staff consistently interprets that term to include a statement of a client’s experience with, or endorsement of, an investment adviser. Therefore, the staff believes that, depending on the facts and circumstances, the use of “social plug-ins” such as the “like” button could be a testimonial under the Advisers Act. Third-party use of the “like” feature on an investment adviser’s social media site could be deemed to be a testimonial if it is an explicit or implicit statement of a client’s or clients’ experience with an investment adviser or IAR. If, for example, the public is invited to “like” an IAR’s biography posted on a social media site, that election could be viewed as a type of testimonial prohibited by rule 206(4)-1(a)(1).

Anticipated Regulatory Actions

We believe the take-home message from the first paragraph is the anticipation that the SEC will now expect to be able to review all of your firm’s communication distributed through social media sites. We believe the take-home message from the second paragraph is the anticipation that the SEC will now expect to be able to review all content hosted on your firm’s social media pages regardless of who wrote it. So now, not only should your firm have compliance procedures established to regulate the content posted to those pages by all parties within your firm, you should also have procedures in place to regulate the rest of the world’s commentary posted on your firm’s social media pages. And the idea of anyone “liking” anything about your firm being construed as a testimonial indicates, at least to us, that the SEC is going to be extremely aggressive in its application of existing securities laws to social media. Curiously absent from the “liking” warning is any mention of Facebook’s other buttons: Recommend, Send, Share, and Subscribe.

Finding A Happy Medium

Considering all of the above, we can now create a social-media-use framework using two extreme positions and evaluate our recommendations within this context. The most conservative stance would be for your firm to forbid all forms of social media use by everyone in your firm, essentially ignoring its very existence. The most liberal stance might be to create social media pages across multiple social media platforms and permit everyone in your firm to use social media without creating any centralized compliance review or record retention policies for any distributed or hosted content. We believe the use model we have established within this multi-part article balances the wish-list of all RIAs by satisfying the compliance risk aversion of ultra conservative RIAs while meeting the desires of more aggressive RIAs to maximize the potential ROI offered through the appropriate use of social media.


In conclusion, we believe the opportunities created by the ubiquitous nature of social media mandate a paradigm shift in the way your firm thinks about its interaction with clients, referrals, referrers, and even allied professionals. However, we do not believe your firm needs to incur any additional regulatory liability by establishing and promoting social media pages, particularly over and above your website, in order to leverage social media to your firm’s benefit. Instead, we believe you can take steps to minimize your firm’s own social media footprint and, instead, rely on your contacts’ existing social media use to distribute your message to their network of contacts, about whom you know nothing and would likely otherwise never reach through your own social media efforts.

Recall the only social media page we created during this series of articles was a Google+ page designed to serve as one of your firm’s primary media distribution conduits to your contacts, segregated by Google+’s “circles” feature. Additionally, your firm can avoid the need to review third party commentary on your firm’s Google+ video posts simply by disabling the posts’ commenting functionality. Regarding Google+ hangouts, the potential exists to record the entire hangout session for archival purposes, most assuredly satisfying all current and future SEC multimedia review requirements. Lastly, we sidestepped a potential regulatory headache by permitting your website visitors to share your content with their social media contacts using their social media accounts instead of delivering content through your firm’s accounts. Clearly, this model relies on successfully driving traffic continuously to your firm’s website instead of any social media pages. How best to accomplish that objective is addressed in this article. Of course, as with most things related to technology, future actions by the major social media platform publishers could change significant components of this discussion; but, as social media stands right now, we are confident in our recommendations.

If you are an active social media user, please consider sharing this topic with your acquaintances who may benefit from our services.