More and more RIAs are successfully marketing themselves on LinkedIn, Twitter, Facebook, and other social networking platforms.

But there’s still a lot of confusion about what SEC regulations allow on social media. A lot of that confusion clearly comes from the rich but complex features of each platform, and how the regs apply to each feature.

To our knowledge, no one has attempted a feature-by-feature analysis of what’s allowed, on one piece of paper. So here’s ours (see back side). We welcome your comments and suggestions.

Our take on how SEC regs apply to RIAs using social media

THE SKINNY
The good news is that unlike asset managers, whose marketing must comply with FINRA regulations, SEC-registered investment advisors must abide by the rather more forgiving Section 206 (particularly 206(4)-1) of the Advisers Act. (We’d argue that smaller, state-regulated advisors should do the same.)
RIAs therefore have a good deal of flexibility in marketing on social media. They need only follow four basic principles, in our view: Treat all social networking as advertising, monitor frequently, keep comprehensive records, and stay away from testimonials.

THE DETAILS
1. Think “advertising.” Although a few social networking features can be considered correspondence (direct tweets, for example), most are directed to more than one person and therefore qualify as advertising. So keep things simple: Treat everything you do on social networks as advertising:

•    Disclose all material facts
•    Don’t publish testimonials
•    Don’t use “RIA” improperly

2. No testimonials. We just said that, but here’s exactly how it plays out on the major platforms:

•    LinkedIn – Don’t provide or accept recommendations
•    Twitter – Don’t FAV (“favorite”) anyone else’s tweets (It’s OK for someone favorite your tweets, as long as there’s no influence or entanglement, since it doesn’t appear on your page.)
•    Facebook – Don’t use the “like” (thumbs up) button on others’ pages
•    Where possible, discourage friends from using the “like” button on your page

3. Monitor frequently. If you’re doing social networking well, you’ll be engaging in conversations with others. While you might be complying with SEC regulations, others contributing to your pages may not be. You’re responsible for what appears on your pages. So regularly monitor your pages and remove:

•    Anything that could be considered a testimonial
•    Any other content that conflicts with Section 206(4)-1 or 206 in general

4. Keep records. RIAs must keep records of

1.    any communication sent to or received from clients or prospects that discusses your recommendations or suggestions,
2.    and all advertising.
Almost everything you could do on the platforms meets these criteria. Again, keep it simple. Keep records of everything. And observe other recordkeeping requirements:
•    Keep content for the five-year-plus period
•    Make sure records are accessible and secure (electronic archives are OK)

5. Develop a policy. Create and publish your social media policy. Make sure it clearly explains how it prevents violations of the Advisors Act (particularly testimonials). Review and update your policy annually. Social media platforms continue to evolve, and so will your use of them.

GETTING STARTED
The big four social networking platforms aren’t the only ones you’ll want to participate on. It can make lots of sense to participate on smaller, more targeted social networking platforms—bulletin boards, chat rooms, etc. Apply the above principles to whatever you do on these platforms.

Before you embark on any social networking program, make sure you have a recordkeeping system in place. We highly recommend Arkovi, which has been developed by veterans of the financial advisory industry and is being used successfully by a number of industry firms.

Once you’re plugged in, but before you start participating, listen to the conversation. Subscribe to people like @AdvisorTweets on Twitter. On LinkedIn, search groups for “financial advisor” and join the groups that are most relevant to your practice. Then listen. Do this daily for 15 minutes, and in a month’s time you’ll be surprised at how well-educated you are on what is and isn’t effective for RIAs on social media.

2/14/11 UPDATE
Social platforms have only gotten better since we first published this cheat sheet. A tweet is no longer just text, but can include photos and videos. And LinkedIn homepages now accommodate an extraordinary range of media. But our recommendations remain unchanged—with the exception of Facebook’s “like” feature.

To us, “like” sounds uncomfortably close to a testimonial. So we initially recommended that advisors avoid “liking” things themselves and “likes” from others. We were half wrong. RIAs who want to be on Facebook can’t avoid “likes” from others. The only way people can follow your
business page is to “like” you. And if a follower “likes” your content, it’s difficult to remove the “like.” (We still think advisors shouldn’t use “like” themselves.)

To our knowledge, the SEC hasn’t come down on a single RIA for receiving “likes,” while the number of RIAs using Facebook continues to grow. As Facebooks says on its site, “When you click “Like” on a Page, in an advertisement, or on content off of Facebook, you are making a connection.” So far, the SEC seems to agree.