All posts tagged IAR

Social media such as Facebook, Twitter, LinkedIn, or blogs have become popular mechanisms for companies to communicate with the public. Social media allows companies to communicate with clients and prospective clients, market their services, educate the public about their products, and recruit employees. Social media converts a static medium, such as a website, where viewers passively receive content, into a medium where users actively create content. However, this type of interaction poses certain risks for investment advisers and this topic has been a hot button for securities regulators.

The SEC previously issued a National Examination Risk Alert on investment adviser use of social media. As a registered investment adviser, use of social media by a firm and/or related persons of a firm must comply with applicable provisions of the federal securities laws, including the laws and regulations under the Investment Advisers Act of 1940 (“Advisers Act”). The Risk Alert noted that the various laws and regulations most affected by social media are anti-fraud provision, including advertising, compliance provisions, and recordkeeping provisions. Advisers Act Rule 206(4)-7 requires firms to create and implement social media policies, and periodically review the policy’s effectiveness.

Anti-fraud provisions with respect to advertising are probably most affected by the use of social media. All social media use and communications must comply with Rule 206(4)-1. While advertising policies should already be included in a firm’s compliance manual, such policies may not be sufficient enough to address some of the concerns with advertising in the context of social media. Establishing a specific policy to address social media may be prudent.

The area of advertising that has caused the most confusion is the prohibition on the use of testimonials. The SEC has previously defined testimonial to include a statement of a client’s experience with, or endorsement of, any investment adviser. Firms and IARs must ensure that third-party comments on their social media sites do not constitute a testimonial. Furthermore, the SEC vaguely discussed whether the popular “like” function on many social media sites would be deemed a testimonial:

“[T]he 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).”

The types of policies that firms must create concerning advertising and testimonials depend greatly on the function of a specific website. For instance, approving the firm or IARs use of certain websites may turn on whether that website allows for review and approval of third-party comments before such comments are posted on the site or whether the “like” function can be disabled. A firm’s monitoring capabilities and the latitude it wants to provide employees with respect to personal use of social media cannot be ignored either.

The SEC has outlined various factors that should be considered by an investment adviser when evaluating the effective of their compliance program. These factors are:

  • Usage and content guidelines and restrictions on IAR use of social media whether on behalf of the firm or for personal use;
  • Mechanisms for approval of social media use and content;
  • Monitoring of social media use by the firm and IARs and the frequency of monitoring;
  • Consideration of the function or risk exposure of specific social media sites;
  • Establishing training and requiring IAR certification;
  • Whether access to social media poses information security risks; and
  • Firm resources that can be dedicated to implementation of social media policies.

There are various considerations firms must take into account when establishing social media policies or evaluating the effectiveness of its existing policies. If your firm needs assistance, the Investment Adviser Rep Syndicate can assist with creation or review of such policies.

Most of us know by now to have a plan for our eventual exit from this life. The centerpieces of the plan typically are insurance, a will and a trust, and beneficiary designations properly completed on all applicable accounts. On the other end of the scale, most of us have an emergency fund for a sudden precipitous financial hit caused by an unexpected decline in revenue or a spike in expenses. Some of us even plan ahead for the unfortunate possibility of the demise of our marriage with a “pre-nup” or other financial arrangements.

But how many of you have made contingency plans for your current position in the industry? If you are a decent producer associated with a large wire-house, are you blinded to the fact that your relative contentment might not be the only determining factor for your continued tenure? That is a fancy way of asking if you have a plan if you get shit-canned.

Many investment advisers and dually registered folks conjugate about what it would be like to have their own RIA. The American dream of being one’s own boss and the shining promise of independence and profits can almost make one giddy. But, I am trying to impress upon you the importance of realizing that one day circumstances beyond your control might push you from dreaming to scrambling.

Whether you would prefer to experience practicing your honed fiduciary skills with an independent broker/dealer, a large SEC registered RIA, or a small state-registered RIA, the amount of preparation for the transition will depend upon your current model. The more detailed your plan, the more likely you will survive the transition, particularly if sudden, with less (rather than no) financial or cardiovascular hardship. The amount of regulations pertaining to everything from the type of files you must keep, regulatory filing deadlines, and certain policy packets that must be in place can be overwhelming without the assistance of a valued and knowledgeable advocate.

The market is filled with attorneys and consultants that can assist you with your transition. You will need one of each and this is not the time for you to employ penny wise and pound foolish measures. Once you have a specific confidential plan in place, you can decide whether or not to use it, or simply put it in the drawer with your insurance policy and estate planning documents.

My law firm has assisted individuals that have needed to migrate at the drop of a hat for employment or regulatory reasons. While it is doable, it certainly isn’t optimal. And the more independent you want to be, the more details there are to identify, evaluate, and address. Where you want your office to be located will suddenly be as important as why you want to rely upon us for back-office support.

In addition to reviewing this blog and joining The SyndicateI would recommend to you a recent article by Jill Cornfield entitled “Independent Advisers: Is striking out on your own all it’s cracked up to be?Start planning for your dreams in case they arrive sooner than you planned!