Mitigating the Risks of Form ADV's New Social Media Disclosure Requirements

September 15, 2017

If the idea of hashtags, interactive posts, and social media presence isn’t scary enough, the SEC is now interested in knowing how advisers are managing and monitoring the risks that social media platforms present. As part of broader Form ADV updates that will begin influencing advisers on October 1, 2017, advisers will be required to disclose the links to company level social media sites. 

The greatest impact of this new disclosure requirement will occur as advisers file their annual 2018 Form ADVs in March. However, advisers with different fiscal years or advisers needing to submit other-than-annual amendments should be aware that the new disclosure requirements begin October 1, 2017. The requirements create a higher probability that regulators will conduct surveillance of social media content of advisers’ employees. It will be increasingly important for advisers to stay ahead of the regulators by maintaining constant awareness of their employees’ public facing social media content, which could make its way into regulators’ lines of questioning during exams.
Regulators will likely be on the lookout for things like potential misrepresentations, inconsistencies, recommendations and endorsements, public offering of private securities, disclosure of confidential information, potential market manipulation, etc. In advance of the new social media disclosure requirements, advisers should consider an assessment of their company and employees’ social media presence. With year-end quickly approaching, many advisers choose to incorporate such assessments into their annual compliance testing.

Advisers may use social media platforms to promote brand awareness, for educational purposes, for recruitment, and for marketing. As advisers are determining how they use social media, they should establish usage guidelines, content standards, supervisory and monitoring processes, and process for approval of new content. The ways in which advisers and their employees use social media may pose regulatory or reputational risks. Rule 204-2, Section 203, and Rule 206(4)-1 all serve as relevant regulatory guidance for advisers’ use of social media. 

The content of the communications will determine whether or not it’s a business communication, not the actual device or platform being used. If an adviser is to use social media for business purposes the adviser should:

  • Limit access of who is posting what and where,
  • Determine who will be responsible for preclearing, reviewing, and editing content,
  • Utilize archival capturing capabilities, and
  • Develop periodic monitoring as new platforms arise presenting new risks.

How ACA Can Help

ACA’s Social Media Surveillance Service is designed to help investment advisers better understand the broad public-facing web presence of the adviser and its employees. ACA’s team of surveillance analysts utilize a social media aggregator to help advisers mitigate the risks certain social media content may present. ACA’s Social Media Surveillance Service is offered as part of our Compliance Support Solutions, which help CCOs manage their budgets and do more with less. ACA’s Compliance Support Solutions are provided out of ACA’s Analysis and Review Center (“the ARC”) in Pittsburgh, PA. The ARC’s team, which is overseen by a former regulator, has practical experience and knowledge specific to the regulatory challenges and obligations faced across the industry. 

For More Information

If you have questions about this alert or would like to learn more about ACA’s Social Media Surveillance Service, please contact Sean McKeveny