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What Gets Financial Professionals into Trouble with Social Media?
Sometimes it seems as if social media has just created a universe of new ways for financial advisors to run afoul of regulators.
Consider the following stories.
■ A New York-based money manager paid a $100,000 penalty in 2014 and was censured after he used Twitter and other media to disseminate misleading statements about business performance, the Securities and Exchange Commission (SEC) said. Among other things, regulators charged that the manager tweeted that he was responsible for model portfolios in his newsletters that “doubled the S&P 500 the last 10 years,” even though he had no involvement in the model portfolio performance for the first three years.
■ The Financial Industry Regulatory Authority (FINRA) fined a Hauppauge, New York, broker $5,000 and suspended him for 10 days in 2013 after he posted unwise remarks on his Facebook account about a pharmaceutical company whose weight-loss drug he was promoting. In disputing a comment about Arena Pharmaceuticals' (ARNA) stock price, the broker wrote: “Another idiotic article on ARNA from someone who has no clue what she's talking about . . . LMAO. Brooke do your due dili. There's no safer weight loss drug than ARNA.” FINRA said the post made exaggerated claims, was neither fair nor balanced, and neglected to mention that the broker owned 10,000 shares of the stock.
■ An Owens Mills, Maryland, broker was fined $10,000 in 2013 and suspended for 2 months after FINRA found that he had put up unapproved websites, including a LinkedIn profile, that violated rules requiring balanced presentations of investment content. Among other things, FINRA said, the LinkedIn profile declared that the broker worked “to create tax-advantaged, wealth building and protection plans,” without identifying the strategies or products covered in such plans.
The three incidents offer important lessons. Disciplinary cases of these types don't happen very often but are likely to come up more frequently, as both FINRA and the SEC pick up the pace in reviewing social media communications. What's striking about these three stories is the fact that all three brokers would have gotten into trouble if social media had never existed and they had simply carried on with their behavior using older forms of communication. The rules for presenting advertising in a complete and balanced fashion, for example, have existed for decades. Social media hasn't changed that.
With that in mind, let's turn to some of the regulatory issues that advisors need to keep in mind if they want to avoid social media mishaps. Among other things, we will look at ways of managing risk, dealing with problematic content that finds its way onto websites, and sharing some big- picture tips.
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