Getting Serious About “Social” Selling: Part 1 – Rules of the Road

Getting Serious About “Social” Selling: Part 1 – Rules of the Road Jonathan Bentley, Managing Director, Head of Content The Tipping Point Leveraging social media for business development has hit a tipping point. Adoption of the top platforms, Facebook, Twitter, and LinkedIn, have hit a critical mass of usage, giving them a business utility well beyond their initial friendly connections and novelty. Today 74% of all adult Internet users engage in the use of social media.[1] According to PewResearch, users aged beyond 50 years old, who are a key demographic for some advisors and money managers, grew from 11% of the users over 50 years old in 2008 to 65% of them in 2014. [2] Despite having a substantial audience, most firms have yet to leverage this new medium. There are two reasons for this. One is apprehension over regulatory compliance issues. The other is because of the hybrid nature of the medium. A blend between personal networking, old-fashioned direct mail and display ads is quite unlike any marketing tools that have come before. The ability to add amazing reach and connection capability will become the foundation of any firm’s business development plan. For that reason, we are going to devote the next several postings to practical tips on how to leverage each of the three primary social networking platforms.

Strict Course for Endorsements With this posting we will address regulatory compliance, the boundaries set out by FINRA and SEC. SEC’s guidelines focus on Rule 206(4)-1 under the Investment Advisers Act of 1940 which prohibits an RIA from publishing, circulating or distributing any advertisement which refers — directly or indirectly — to any testimonial of any kind concerning the RIA or any advice, analysis, report or other service rendered by the investment advisor. The fact that social media clients can effortlessly endorse and recommend their advisors with just a few clicks has caused SEC to update its guidance to reflect these new facilities. In March 2014, they issued Guidance No. 2014-4 — Guidance on the Testimonial Rule and Social Media — providing further clarity on investment advisors’ use of third party commentary on social media.

The new guidance makes its clear that whilst an advisor should not invite clients to post commentary or testimonials directly on the investment advisor’s own social media site or page, they went further to say that LinkedIn endorsements and independent recommendations about the advisor’s skills should be avoided all together. They recommend that an advisor select “No” for the “I want to be endorsed” feature under the “Skills and Expertise” section on their LinkedIn profile to turn off the feature that allows clients (other LinkedIn users) to endorse their skills. In addition, if a connection attempts to add a new skill to the advisor’s profile, the advisor should reject the endorsement to avoid violating the testimonial rule under the Advisers Act. Vacating the Recommendations Beyond endorsements, an advisor’s clients can also offer recommendations on LinkedIn. These are written opinions about the firm’s skills or capabilities. The rules prohibit accepting any such recommendations. An advisor has the ability to accept or reject such recommendations, to have editorial control over what is seen. Third party sites, where the advisor has no editorial control so that both favorable and unfavorable recommendations can appear, are the only place that recommendations are allowed. Advisors are also advised to add a preemptive note to the summary section of their profiles to indicate that they will not accept recommendations or endorsements. The application of these rules for Twitter means that advisors should not re-tweet any tweets from either a research analyst or a client who is providing a testimonial about the

advisor’s performance or a product or service of its firm.

The March 2014 SEC guidance also clarifies how advisors can use third-party commentary on social media. According to the guidance, advisors should not link to commentary on a third-party social media site unless they can demonstrate: 1) That the advisor has no ability to affect which public commentary is included or how the commentary is presented on the independent social media site; 2) That the commentator’s ability to comment is not restricted; 3) That all comments, both good and bad, can be viewed publicly.

New Content Categories Moving onto FINRA, the key thing to focus on is a new category of content they call “interactive” as distinct from “static”. Static content are communications over which the advisor has full control, for example social media profiles. According to FINRA, everything in this category is considered an advertisement under Rule 2210, and requires a registered principal of the firm to approve the content in advance of publication as well as to keep records. As such, there is nothing new here for an advisor to understand.

However, Interactive content is different. It primarily refers to blogging where comment is open and there can be unplanned two-way communications. The regulators define it as communications that are, while similar to static content, focused on a target audience, published in a form that allows the target audience to respond to and comment on the messaging. While this category of content does require record keeping, it does not require prior principal approval.

According to Rule 2210, firms must supervise these interactive electronic communications in a manner reasonably designed to ensure that they do not violate FINRA’s prohibitions of misleading or unfair advertising.

Picking The Right Partner InvestCloud’s content team brings more than 30 years of experience in developing content for money managers and advisors. In addition, they have focused exclusively on web-based communications for the last 15 years. InvestCloud has an extensive experience in writing compelling copies that are regulatory compliant and have knowledge on how to effectively navigate the opportunities of social media. Since everything an advisor does on social media is essentially subject to the rules with which they are already familiar, our summary advice is that most anything you do in social media posts is safe if you avoid the three “P”s: Product pitching; Promises of performance; Personal endorsements. Remember, if the content is “static” FINRA requires pre-approval and supervision, and if it is “interactive” no pre-approval is required. What does this leave? A wide-open field for personal, market and economic commentary focused on connecting with and developing professional and personal networks.

That will be our focus in upcoming posts as we shift to specific strategies for leveraging each of the primary social media platforms. Next week, we will address LinkedIn, the most important of the three major social media platforms for business development. Shortly after that, we will be discussing Facebook and, in the following week, Twitter.

If you would like to learn more about InvestCloud’s compliant content services and how we can help your firm develop its social media presence, visit us at www.investcloud.com or click here to request a demo.

Jonathan Bentley leads InvestCloud’s content development and management division. From helping advisors better craft and deliver their stories to curating customized advisor RSS site feeds, Jonathan’s team is critical to InvestCloud’s bespoke design and site management services. Jonathan was previously founder and CEO of LightPort Inc. which was acquired by InvestCloud in 2013. Previously a practicing RIA, while at LightPort Jonathan was involved in developing web portals for more than 500 advisors and money managers.

[1] "Social Media Use by Age Group Over Time." Pew Research Centers Internet American Life Project RSS. N.p., n.d.

Web. 14 Oct. 2014. As of January 2014, 74% of all online adults use social networking sites.

[2] "Social Media Use by Age Group Over Time." Pew Research Centers Internet American Life Project RSS. N.p., n.d.

Web. 14 Oct. 2014.