RIAs Can't Be Consumer Advocates If They Disregard SEC Advertising Rules By Using Social Media Apps Without Archiving Their Posts

Thursday, March 10, 2011 20:53
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RIAs Can't Be Consumer Advocates If They Disregard SEC Advertising Rules By Using Social Media Apps Without Archiving Their Posts

Tags: client communications | compliance | Dodd-Frank | FINRA | marketing | sec | Social Media

At a time when RIAs are pointing the finger at brokers for not supporting a fiduciary standard and arguing against FINRA becoming their regulator, most of them are thumbing their nose at advertising rules by not keeping records of their social media.

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RIAs are seizing the moral high ground by supporting a fiduciary standard of care for clients that would apply to registered reps as well as IA reps. Meanwhile, RIAs say they won’t want to be regulated by the same agency that oversees registered reps, FINRA, arguing that the Securities and Exchange Commission can do the job just fine.


These positions trouble me in light of an admittedly unscientific but nonetheless valid survey I recently conducted revealing that RIAs are not following advertising rules by keeping records of all their social media profiles, posts, and status updates.


My survey was conducted last week while at the FPA Business Solutions conference in Cambridge, Mass. I was a panelist at a session about the use of social media by advisors and about 100 advisors were in the room.


I asked the attendees how many of them were RIAs and about two-thirds raised their hands.


Then, I asked how many of the RIAs were using social media and about 40 raised their hands.


Next, I asked how many of the RIAs were archiving their social media content and only three or four raised their hands.


My poll was hardly definitive but there’s no reason to believe inaccurate. It’s crazy!


Several years into the social media revolution, we are seeing widespread use by RIAs of social media, and we’re also seeing a widespread failure RIAs to follow SEC rules on retaining advertising materials.


For so many RIAs to ignore the rules at the same time that that Financial Planning Coalition—a group that in large part represents RIAs—is arguing for a strong fiduciary standard consistent with the Investment Advisers Act of 1940 is hypocritical.


For so many RIAs to thumb their noses at the rules at the same time that they argue against being regulated by FINRA is hypocritical.


I fear that the SEC’s lack of resources and record of incompetence has encouraged many RIAs to become lazy about following the rules that govern their behavior.


I see evidence of that laxity in my work with advisors. That RIAs are ignoring rules on archiving their social media content is just one example of their laxity.


The SEC is reportedly sending out requests to RIAs for information about their social media activities and policies. The “sweep” is likely to result in deficiency letters and some heavy wrist slapping.


But the real damage will be done to RIA advocacy in support of applying a strong fiduciary duty on brokers as well as IA reps and in trying to fend off regulation by FINRA.


In the months ahead, as these two issues are taken up by the SEC, an SEC sweep that uncovers widespread disregard of advertising rules could undermine RIAs.

 

 

 

 

 


 

Comments (4)

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bramsay
Andy, you are absolutely correct that RIAs need to be more vigilant. And that the SEC is lacking resources. We should be demanding that Congress allocate more money to the SEC, and we should put people in charge who believe that government can be competent and capable.

However, failure to archive advertisements in a new and evolving medium is not even in the same ballpark as the inherently conflicted financial product manufacturer/distributor business model.

This is exactly the kind of attention on the wrong things that concerns RIAs regarding FINRA oversight. The BD world (finra) thinks that signed new account forms with Growth checked, along with a signed "I read and understand this 200 page variable annuity prospectus" disclosure makes a product OK. Or that requiring every piece of printed material to be submitted to FINRA actually improves the education of the public and the quality of financial products. In fact, it appears from recent research that "approved" disclosure of crappy financial products increases their use by brokers.
bramsay , March 11, 2011
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johnc763
Good point about the need to follow the rules as they understand them. Certainly there is a need to archive postings and there are resources to help advisors archive.
johnc763 , March 11, 2011
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Paul@EWM
Of course, it's not easy to archive and manage social media. The rules were written for unidirectional media (print advertising) with a substantial lead time. Social media is multi-directional and almost instanteous. Very hard, but not impossible, to manage.
Paul@EWM , March 11, 2011
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agluck
BRamsay nailed it! The main issue in regulation is self-funding. FINRA has it, but SEC does not. But that does not negate my point in this post.
agluck , March 14, 2011

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