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What's Hot: Social Media Compliance and Archiving for Investment Advisers

By Kaleigh Alessandro | Thursday, September 20th, 2012

When it comes to compliance, hedge funds and investment management firms have a lot to think about. Dodd-Frank, registration, Form PF, oh my! And these days they can add one more thing to their plates: social media.

Social media, in the mainstream, may be a tool for chatting, researching or staying up-to-date on current events. But for investment firms, social media can be a great marketing opportunity and a way to spread their message. It must also be closely monitored, though, particularly as regulators seek to address its prevalence with archiving requirements.

A History of Social Media in the Financial World

Earlier this year, Goldman Sachs – one of the largest investment banks in the world – joined Twitter. It was a remarkable day, and with 132 characters (barely within the 140-character limit!), Goldman announced that it would be posting updates in the future about its work and its employees. You’re probably thinking “why so remarkable?” The reality is that the financial services industry has traditionally steered clear of social media, worried that it would only pose problems and concerned about bodies such as the SEC reacting in an unfavorable way.

Social Media ComplianceIn 2011, MHP Communications surveyed 77 hedge fund managers about their social media activity and found that only 1 percent of firms were actively on Twitter and none were active on Facebook. According to MHP, “the findings did not surprise us. Historically, hedge fund managers have deliberately kept a low profile and managed their reputations accordingly. They are also concerned about the regulatory implications of social media. As such, adoption of social media is extremely low.”

The Legal Requirements

We all know that emails and instant messages are required by the SEC to be archived for five to seven years. But where do they stand on social media content? According to SEC Rule 17a-4(b), registered investment advisers and broker-dealers should archive all business communications on social media for at least three years. With discovery audits on the rise, firms should ensure these communications can be easily searched and recovered in the event of an SEC inquiry.
Despite the requirements, social media is still a hot topic among registered investment advisers. According to the seventh annual Investment Management Compliance Testing Survey, released earlier this year, social media was the “hottest” compliance topic for firms, with 80 percent of RIAs stating they have adopted formal social media policies (up from 64 percent in 2011 and 43% in 2010). However, 54 percent of firms reported that their firms have prohibited the use of social media – another indication that full-scale adoption and acceptance has not yet arrived.

What’s Next for Social Media Compliance?

As investment firms continue to introduce social media into their business strategies, they must also develop written social media policies to ensure proper procedures are outlined for employees relative to acceptable and unacceptable use of social media. This will be a firm’s best defense for managing an effective social media campaign. Firms will also continue to implement social media archiving tools – such as those from Global Relay, Smarsh and Hootsuite – to comply with SEC regulations, particularly as the SEC begins to administer discovery audits. The reality is that social media sites such as Twitter, Facebook and LinkedIn have become mainstream avenues for business communication (even in financial services), and therefore, firms must work diligently and carefully to ensure they put their best foot forward whether it be via status update or tweet.

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Photo Credit: Global Relay

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