Advisors' Social Media Use Surges Despite Compliance Challenges
Relief could be coming: The SEC says it may soon look into modernizing the Advertising Rule.
RIAs are increasingly embracing social media sites like LinkedIn and Facebook for marketing purposes despite the compliance challenges, notably compliance with the Securities and Exchange Commission’s “stringent” advertising rule, according to a recent Investment Adviser Association survey.
Relief could be coming, however, as the agency’s head of investment management, Dalia Blass, said earlier this year that she anticipated the IM Division would present “recommendations for a proposal on modernizing the advertising and solicitation rules” for investment advisors soon.
Amending the Advertising Rule (Rule 206(4)-1) and Cash Solicitation Rule (Rule 206(4)-3) under the Advisers Act regarding marketing communications and practices by investment advisors is on the SEC’s short-term regulatory agenda, the Evolution/Revolution report, released in mid-September, notes.
An IAA spokesman said on Friday that the SEC’s fall regulatory regulatory agenda should be published within the next month.
The report, conducted annually by IAA and National Regulatory Services, provides a snapshot of the RIA space. It found that as in 2018, LinkedIn is the preferred social media site for advisors, with almost 40% of all advisers (5,146) reporting at least one LinkedIn page — a 29% increase since 2018.
Consumer-oriented services such as Facebook and Twitter are by far the next most popular platforms among advisors, with Facebook claiming 2,501 advisor users (up 25% from 2018) and Twitter being used by 2,364 advisors (up 22% from 2018), the report states.
“The fact that users are increasing by such sizable numbers indicates that firms, while still generally reluctant, are starting to embrace social media as a necessary element of their marketing strategies, despite the compliance challenges they present,” the report states.
Other social media platforms used by advisors include YouTube (694 RIAs, up 35%), Instagram (442, up 76%), Vimeo (67, up 49%), and SoundCloud (66, up 53%).
Advisors are also increasingly using multiple electronic media platforms to connect with clients and prospective clients, with the number of advisors with at least one social media platform or website continuing to increase, rising from 11,070 in 2018 to 11,538 in 2019.
The report notes that advisors have been reluctant to use social media to attract clients because “almost all social media posts are subject to the SEC’s stringent Advertising Rule” under the Advisers Act, which hasn’t been materially amended since 1961.
“The current regulatory framework governing advertising by investment advisors is unnecessarily complex, overly broad in reach, unduly prescriptive, and involves a complex maze of enforcement actions and several decades’ worth of SEC staff no-action letters and interpretive releases that are difficult to decipher and apply to evolving circumstances,” the report states.
The Advertising Rule prohibits or restricts client testimonials, references to past specific profitable investment recommendations, and portfolio performance without substantial disclosure.