17.2 Social Media & Electronic Communications

Modern communications technology requires advisers to maintain compliance across all digital platforms. The same rules that apply to traditional advertising apply to social media and electronic communications.

Social Media Compliance Framework

Core Principles

Social media posts are subject to the same regulatory requirements as traditional advertising:

- Must not be misleading or deceptive

- Must be fair and balanced

- Must include required disclosures

- Must be supervised and approved

- Must be archived and retained

Types of Social Media Content

Static Content: Treated as advertising; Pre-Approval Required - Yes, principal approval

Interactive Posts: May be treated as correspondence; Pre-Approval Required - Generally no

Third-Party Shares/Likes: May constitute adoption; Pre-Approval Required - Case-by-case basis

Private Messages: Correspondence; Pre-Approval Required - No, but must supervise

Adoption and Entanglement

Adoption: When an adviser "likes," shares, or republishes third-party content, the adviser has adopted that content and becomes responsible for its compliance with advertising rules.

Entanglement: If an adviser is involved in preparing content that appears to come from a third party, the adviser is "entangled" with that content.

Liking a client testimonial: Adoption - adviser is responsible for content

Sharing an article without comment: May be adoption depending on context

Helping client write review: Entanglement - treated as adviser's own communication

Ignoring negative comments: Generally acceptable; not adoption

Recordkeeping Requirements

Books and Records Rule

Investment advisers must retain records under Rule 204-2 of the Investment Advisers Act.

Advertisements: 5 years; First 2 years in accessible location

Electronic Communications: 5 years (from creation); First 2 years readily available

Client Correspondence: 5 years; Organized and retrievable

Social Media Posts: 5 years from last use; Must capture complete record

What Must Be Archived

All communications relating to the adviser's "business as such":

- Emails to/from clients and prospects

- Text messages about advisory services

- Social media posts (both public and private)

- Webinar recordings

- Blog posts and website content

- Chat/messaging communications

Non-Business Communications

Communications that are purely personal and have no connection to the adviser's business need not be retained, but distinguishing between personal and business communications can be challenging.

Supervision Requirements

FINRA Rule 3110 (for Dual Registrants)

Broker-dealers and their associated persons must be supervised, including electronic communications.

SEC Compliance Program Requirements

Advisers must have:

- Written supervisory procedures for electronic communications

- Regular review of communications

- Training on appropriate social media use

- Clear policies on personal vs. business accounts

- Approval process for marketing materials

Pre-Approval Requirements

Advertisements: Required - principal must approve

Marketing materials: Required

Performance claims: Required

Testimonials: Required

Real-time interactive posts: Generally not required (but supervised)

Client correspondence: Generally not required (but supervised)

Privacy and Data Protection

Regulation S-P

SEC Regulation S-P requires investment advisers to:

- Provide initial privacy notice at account opening

- Provide annual privacy notice (with exceptions)

- Give opt-out rights for information sharing

- Safeguard customer information

Privacy Notice Contents

Required information includes:

- Categories of nonpublic personal information collected

- Categories of information disclosed to third parties

- Categories of third parties receiving information

- Description of security policies

- How to opt out of information sharing

Cybersecurity Requirements

Investment advisers should have written policies addressing:

- Protection of client data

- Incident response procedures

- Regular risk assessments

- Employee training

- Vendor due diligence

On the Exam: Remember that social media is subject to the same rules as traditional advertising. "Liking" a client testimonial constitutes adoption of that content. Electronic communications must be retained for 5 years, with the first 2 years in an accessible location.

Key Takeaways

- Social media posts are subject to same rules as traditional advertising

- Liking/sharing third-party content may constitute "adoption"

- Electronic communications must be retained for 5 years

- First 2 years must be in an accessible location

- Privacy notices must be provided at account opening