Implementing a social strategy that won’t get you fined by the SEC

The Securities and Exchange Commission’s new marketing rules for investment advisers offer exciting new opportunities for online marketing. But the new rules are also full of risks. 

As we draw nearer to the agency’s Nov. 4, 2022, compliance deadline for the updated Investment Advisers Act, it’s important for firms to understand exactly what they can and can’t do, particularly when it comes to marketing and advertisements via social media and messaging apps, as well as the agency’s new mandate on digital record keeping. Otherwise, they could face significant financial penalties.

The SEC collected a record $4.7 billion in fines in 2020, and the Financial Industry Regulatory Authority Inc.’s enforcement cases increased across the board. International data privacy and data residency requirements are also becoming more complex, with new guidelines being implemented in many parts of the world.

Here’s what you need to know:


Obviously, one of the biggest changes in the Investment Advisers Act is the new marketing rule, Rule 206(4)-1, which allows regulated firms to include testimonials, endorsements and third-party ratings in their advertising and marketing communications. For the first time, that now includes online marketing, such as social media, websites, email and mobile apps. 

But to do so, investment firms must follow the agency’s strict guidelines by providing proper disclosures, presenting information in a fair and balanced way and avoiding misleading language.

Those criteria are easier to follow for traditional marketing communications, such as print, radio and TV ads. They get trickier when firms start delving into the murky and dynamic world of social media and messaging apps. 


Unlike the static nature of traditional advertisements, social media and mobile app marketing is highly fluid and interactive, and regularly blurs the lines between the professional and the personal, directed and undirected. 

These characteristics could easily lead to critical mistakes by investment firms that violate the SEC’s regulations.

Here are a few examples:

When do “likes” and retweets cross the line? Advisers can run into trouble when they appear to be endorsing third-party content that discusses their investment advisory services. 

The new marketing rule doesn’t specifically mention social media resharing and “likes” in this context, but the SEC has imposed penalties over retweets before, as in this reference to an adviser punished for retweeting prohibited client testimonials (prior to the enactment of the new marketing rule). 

In the SEC’s final rule, its language makes clear the implications: “An adviser ‘adopts’ third-party information when it explicitly or implicitly endorses or approves the information … An adviser is liable for such third-party content under the marketing rule just as it would be liable for content it produced itself.”

Therefore, advisers should avoid retweeting or endorsing via “likes” third-party content in social media that mentions the firm’s investment advisory services, unless they include the proper disclosures and make sure the information is not misleading or false.

Do retweets count as testimonials? Yes, they can. If your firm reshares a positive social media post from a satisfied customer, it is in effect a testimonial, even if the post was unsolicited. This means it must follow the same required disclosures as other testimonials.

When is direct messaging regulated? Like other types of one-on-one communications, direct messaging in social media or messaging apps generally doesn’t require disclosures by the adviser, unless the adviser includes “hypothetical performance information.”

In such instances, an adviser is excluded from the required disclosures only if the hypothetical performance information is sent in response to an unsolicited request by an investor for such information or to a private fund investor.

Can you use social media influencers? Yes, but social media influencers are considered promoters and therefore they must provide the required disclosures as listed under the marketing rule. 

To avoid running afoul of this regulation, advisers are encouraged to “provide such blogger or influencer with the required disclosures and confirm that they are provided appropriately on his or her respective pages.” It is also recommended that advisers include this disclosure requirement in any written agreement or contract with the influencer.

What about livestreams or webcasts? The SEC’s updated marketing rule exempts “extemporaneous, live, oral communications, regardless of whether they are broadcast” from its advertising regulations. That means investment advisers can hold livestreams on Facebook, YouTube and other platforms, or host or participate in live webcasts, without having to worry about meeting the advertising compliance standards. 

However, the SEC’s language here is very specific — if a webcast is prerecorded rather than airing live, or uses prepared remarks or written language (such as presentation slides), then it’s no longer excluded from these regulations. The same is true if a recorded version of the webcast is distributed afterwards, “if the recording offers the adviser’s investment advisory services with regard to securities.”

It’s easy to see how quickly this becomes complicated. While the SEC’s rule and guidance don’t always cite specific examples of social media interactions, that doesn’t mean its criteria don’t apply. Investment firms will need to make sure they are staying on the straight and narrow to avoid potential violations.


Equally important in the SEC’s changes to the Investment Advisers Act is the updated record-keeping rule (Rule 204-2), which now applies to all advertisements, including those distributed digitally. 

Under the updated rule, investment advisers “must make and keep records of all advertisements they disseminate,” which under the new marketing rule means advertisements sent “to more than one person, or to one or more persons if the communication includes hypothetical performance information, and that offers the investment adviser’s investment advisory services.” These records must be retained “in an easily accessible place for a period of not less than five years,” although the SEC “does not prescribe or prohibit” any particular method for storing these records.

So what does all this mean in a pragmatic business outreach scenario?

Basically, if any of a firm’s advisers are using LinkedIn, Twitter, WhatsApp or any number of social media applications to market their services to prospective new clients, they need to maintain a digital archive of all those communications. Remember, those messages and posts are now considered a form of advertising.

Given the requirement that this type of outreach must be preserved in an “easily accessible place” for at least five years within an appropriate office of the business, that means regulated businesses essentially need to maintain a centralized digital archive of all social selling communications for all advisers, which can seamlessly be searched for legal readiness. 

Since the penalty phase of the SEC’s new marketing and bookkeeping rules is fast approaching, advisers need to start making plans now so they’ll be positioned by late this year to achieve compliance with these new SEC regulations, and be ready to capture all of the social media communications of their staff that promote their financial services to prospective customers. If they don’t, they could find themselves vulnerable to costly and unavoidable regulatory fines. 

Jim Zuffoletti is CEO and co-founder of SafeGuard Cyber, which provides digital communications compliance, security and privacy technology to financial service firms.

The post Implementing a social strategy that won’t get you fined by the SEC appeared first on InvestmentNews.

Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.

Andrew Vincent
Andrew is half-human, half-gamer. He's also a science fiction author writing for BleeBot.
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