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SEC Issues Advisory Alert on Adviser Use of Social Media

The SEC's Office of Compliance Inspections and Examinations recently issued a National Examination Risk Alert regarding investment adviser use of social media.  The alert reminds firms that under the Advisers Act, firms must adopt, and periodically review the effectiveness of, policies and procedures regarding social media, especially in light of rapidly changing technology. 

The SEC staff has noticed that some firms' compliance procedures are unclear about how policies apply to social media and what social networking activity is permitted or prohibited.  The alert includes a non-exhaustive list of factors that advisers "may want to consider" when evaluating the effectiveness of its compliance program, including whether social media use should be monitored, whether pre-approval requirements should be imposed and whether training should be provided to investment advisory representatives.  

The alert also stresses that advisory firms that allow third parties to make postings on their social media sites should consider whether proper safeguards have been taken to avoid violation of the securities laws.  For example, under certain facts and circumstances, a "like" button could be considered the type of testimonial that is prohibited by the Advisers Act.