Heads-up, financial advisers on social media: The government is watching you.
Or, at least, they will on Oct. 1, when advisers must detail on the Securities and Exchange Commission’s updated Form ADV—which all advisers use to register with the SEC and state securities authorities—all social media accounts they use for business purposes.
On the surface, the changes to the document might seem straightforward. But as with many things in life, there’s always the chance of slip between cup and lip.
“Our view is that with all the focus on the Labor Department’s fiduciary rule these significant changes have been completely lost in theshuffle,” said G.J. King, president of RIA in a Box. “The changes impact every RIA firm and may require some firms to invest in new portfolio management reporting technology.”
So, what do advisers need to know about the new form? Here’s a summary of changes the SEC requires, and a deeper look at the record-keeping and supervision requirements from the SEC and the Financial Industry Regulatory Authority.
Advisers should gather all the social media profiles that their company’s investment advisory representatives use for business communication, according to Bill Winterberg, a technology consultant and host of FPPad Bits and Bytes.
The good news, according to Winterberg, is that social media accounts used only for private content do not need to be disclosed. So, for instance, an adviser doesn’t have to include an Instagram account that is used only to post things like vacation photos on the new form.
The new social media account rules—which cover corporate social media accounts as well individual business-related profiles on LinkedIn, Twitter TWTR, -1.24%Facebook FB, +0.33% and other social networks—are perhaps the biggest change to the form, but there are other important ones as well.
Advisers who outsource their chief compliance office functions now need to disclose that, and identify the other firms that the outsourced CCO works with, according to Winterberg.
And they’ll need to provide additional details on how the firm’s assets under management (AUM) breaks down by types of clients—the types are defined in the new Form ADV—Winterberg said.
“This will require some way for the adviser to tag and/or identify clients of a particular type and generate an AUM report that segments account balances by client type,” said Winterberg.
The new form also requires much more detail around separately managed accounts and wrap fee programs that the RIA manages, Winterberg said. (The SEC’s FAQ document has more information on those requirements.)
“RIAs should verify that their technology systems can generate the right kinds of reports to populate the new Form ADV as well as gather information about the custodians and broker-dealers of the managed accounts,” Winterberg said.
The updated Form ADV will require details for these pieces of information in filings made beginning in October, meaning that most advisers may not have to do this until filing their first-quarter amendments in early 2018.
However, if an adviser needs to make other changes to her Form ADV—such as updating AUM or the number of accounts—after Oct. 1, but before submitting the amendment, she’ll need to provide the new information along with it.
Consequently, Winterberg said, advisers should prepare all of the information in the form in advance of the deadline.
“Be prepared a few weeks ahead of the Oct. 1 deadline to populate the information into the new Form ADV, even if the RIA’s annual amendment isn’t required by that date,” he said. RIAs must update their Form ADV annually.
Why the change? The new social media disclosure requirements will eventually allow the SEC to have true “big data” capabilities to monitor the social media activity of advisers in a programmatic and automated manner, King said, so advisers should expect more scrutiny in the coming years.
“Social media needs to be treated like any other form of advertising and it’s essential that it is reviewed and properly archived,” said King, whose company offers a few resources for advisers who want help complying with the new form.
“We should expect more scrutiny of social media archiving in the coming years,” King said, “as the SEC gains access to more robust data and is able to do more remote monitoring to help determine which firms should be audited.”
Additional resources from RIA in a Box:
- New RIA Form ADV separately managed account disclosure requirements
- RIA firms required to disclose social media accounts on the Form ADV
- RIAs will need to disclose more wrap fee information on the Form ADV