Registered Investment Advisers have long used Form ADV to register with the Securities and Exchange Commission and state securities authorities, but starting next year RIAs will face strict new requirements to also report their use of social media accounts on Form ADV.
Previously, advisors were only required to include corporate websites on Form ADV. But starting on Oct. 1, 2017, the SEC has mandated that all advisors must also detail all social media accounts being used for business purposes on the form as well. This requirement includes both corporate social media accounts and individual business-related profiles on LinkedIn, Twitter, Facebook and other social networks.
The SEC recently made this change through the adoption of amendments to Form ADV and the Advisers Act books and records rule. The amendments are intended to give investors and the SEC a more complete picture of the risk profile for each advisor and for the industry overall.
This change represents a major new shift for the SEC, as an advisor’s use of social media accounts will invite even more scrutiny during an audit or examination, just as regulators have done in the past for corporate websites and email trails.
To avoid the risk of penalties, advisors should complete a thorough review of their social media compliance procedures and risk exposures over the coming year. Advisors can start preparing now for the revisions on Form ADV, especially for the SEC’s new requirement that RIAs disclose their firm’s social media platforms in Section 1.I of Schedule D in Form ADV.
Faced with these pending changes, RIAs need to implement new systems that can archive, manage, search and report on digital content from their corporate and individual business-related social media accounts. Otherwise, they may be caught flat-footed and unable to respond in a quick enough or complete enough fashion when the SEC comes calling with requests for specific social media records.
Pre-approval of social posts and content can mitigate risk, but that approach often impacts the timeliness of the communications. Active supervision of social media communications with real-time monitoring and automated policy checking can strike the balance of appropriate governance and control combined with the needed agility to capitalize on business-related social media opportunities.
Taking Proactive Steps for Self-Protection
The vast range of social media content is made up of unstructured data that does not fit neatly into columnar databases with built-in search keys. This will require advisors to adopt technology that can capture the full range of social media communications to bring a degree of order to all the chaos. Many firms have adopted comprehensive digital archiving platforms that can retain, index and produce social media posts alongside other frequently requested communication records, including emails, instant messages and website content.
Archiving platforms give organizations an unlimited and granular view of their social media communications with the ability to apply policies in an automated fashion through a structured review process. Such policies can flag questionable content for review and remediation, and apply those same rules retroactively to search prior posts for policy violations.
If a regulator raises an issue about a certain social media thread, the investment advisor can show how the archiving platform provided safeguards by capturing and managing the content through deliberate policy-based rules. The advisor can also show what the disposition of the specific communication in question was at the time, and who made decisions about the content, through built-in audit trails.
Such a complete platform can also help RIAs quickly scale up their supervision initiatives by putting each message into a larger context across all communications channels. A comprehensive archive provides the power to make connections between different types of message formats spanning a single conversational thread between parties, and to draw meaningful correlations between related messages.
For instance, what would happen if SEC regulators inquired about all business-related tweets and Facebook posts during the summer months of 2016? An RIA with a comprehensive archive could easily locate and produce those records, and even take the process one step further by also including all relevant emails exchanged with a specific client and where they occurred in the time line alongside the social media content.
In this way, the SEC could view the complete context and timing for all digital communications between the advisor and the client in the summer of 2016. Imagine if their conversation had started on a website, moved to email, and concluded on Facebook. The advisor could easily point to the comprehensive archive for documentation of the full progression of the related interactions across all content channels.
These multiplying formats for electronic communications will only continue to grow, so advisors need to shift their mindset away from prohibition and toward enablement by managing the risk out of the process with the proper systems in place. The use of new content channels requires a comprehensive archiving platform that can be extended to archive and supervise new forms of content as they emerge.
Mike Pagani is Sr. Director of Product Mktg. & Chief Evangelist at Smarsh.