Ethics and social media: four key considerations for investment professionals

Social media has arrived in the investment management industry and is changing the way investment professionals conduct their business. Social media is the ultimate integration of technology, interpersonal interactions and content. Facebook, LinkedIn and Twitter, for example, allow investment professionals to develop and/or maintain clear and frequent communications with clients, prospects and peers. Blogs allow investment professionals to educate and promote their services to a larger and more diverse audience in a faster and more cost-effective way. Although social media offers a myriad of opportunities and benefits, it also carries risks and responsibilities for its users.

In the United States, the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have been proactive in providing guidance to the investment industry on the use of social media to ensure compliance with U.S. securities laws (Securities Act of 1933, Securities and Exchanges Act of 1934and Investment Advisers Act 1940). The SEC’s broad definition of social media includes “blogs, microblogs, wikis, photo and video sharing, podcasts, social networks and virtual worlds.”

Guidelines issued by FINRA and the SEC may also provide guidance to CFA members and applicants in all jurisdictions to help them ensure that their social media activities comply with the CFA Institute Code of Ethics and Standards of Professional Conduct. This is particularly important as many countries may not have rules and regulations governing the use of social media or the rules may be in a nascent stage of development. As Standard I(A) states: “Members and candidates shall not engage in conduct that violates the Code and Standards, even though it may otherwise be lawful. The Code and Standards goes on to state that “In the absence of any applicable law or regulation or where the Code and Standards impose a greater degree of liability than applicable laws and regulations, members and candidates shall adhere to the Code and standards”.

Therefore, before engaging in social media, it is important that investment professionals and their firms consider the content of any communication, use of third party information, record retention and policies monitoring.


The primary benefit of social media is that it allows investment professionals to easily and effectively communicate with clients, potential clients and peers. However, this is also the main risk. Investment professionals should be very careful about what they blog, tweet or post on Facebook, as it could be construed as investment advice, which in turn could raise issues of suitability, due diligence and of caution. In addition, investment professionals should be careful not to make statements that could be perceived as false or misleading. the Handbook of Standards of Practice (SOPH) defines misrepresentation as “any false statement or omission of fact or any statement that is otherwise false or misleading”.

The SEC and FINRA consider professional profiles posted on LinkedIn to be web pages. According to the SOPH, investment professionals who use web pages are responsible for regularly monitoring the material posted there to ensure that “all reasonable precautions have been taken to protect the integrity and security of the site and that the site does not misrepresent any information and provides full disclosure.” In its review of investment adviser social media websites, the SEC found that the majority prohibit posting recommendations or posting product information or services.

Third Party Information

Investment professionals should be careful if they allow third parties to post messages, articles and other information on their social media websites. Under the I(C) standard, investment professionals are liable for misrepresentations resulting from the use of third party credit ratings, research, testimonials or marketing materials. To reduce this risk, some companies limit the third-party content that can be posted on their site or only allow their employees to post information on their site.

SEC staff believe that the use of social plug-ins such as the “Like” button could be considered a testimonial (a statement about a client’s experience with an investment adviser or an endorsement of an investment adviser) and is therefore a violation of the Investment Advisers Act of 1940, which prohibits the publication or broadcast of advertisements which directly or indirectly refer to testimonials about an investment adviser.

FINRA prohibits companies from providing links to third-party sites that FINRA knows or has reason to believe contain false or misleading information. In addition, FINRA holds companies responsible for the content of a linked third-party site if the company approved its content or participated in its development.

Records retention policies

Companies are required by FINRA and the SEC to retain all commercial communications made via social media. These communications must be retained for a specified period of time and be available for inspection. For example, businesses and investment professionals need to think about how they will keep track of all business communications made via Facebook, LinkedIn or Twitter. The good news is that the SEC allows companies to hire third parties to handle social media communications.

Similarly, under SOPH’s V(C) standard, investment professionals are required to develop and maintain appropriate records to support their investment analyses, recommendations, actions and other investment-related communications. investment with customers and potential customers. In addition, they must keep records (either electronically or on paper) that support the scope of their research and the reasons for their actions or conclusions. The standard goes on to say that local regulators often impose their own record retention requirements on professionals and investment firms, which must be complied with and which may also meet the requirements of the V(C) standard. In the absence of regulatory guidelines, the CFA Institute recommends keeping records for at least seven years. While it is the firm’s responsibility to maintain records in support of investment actions, CFA members and candidates should always file their own research notes and other documents in support of their investment-related communications.

At the very least, companies should review their record retention policies to ensure they comply with all applicable laws, rules, and regulations. They must also ensure that all employees comply with these policies.

Monitoring policies

Proper supervision is the key to reducing the risks posed by the use of social media. In reviewing how companies use social media, the SEC found that many companies have overlapping policies regarding advertising, communicating with customers, and the use of electronic communications, and that these policies do not often not specifically include social media. Additionally, many policies did not specify what types of social networking activities were not permitted. Therefore, the SEC recommends that companies re-evaluate their internal controls and policies to see if they address conflicts and compliance factors that create business risk.

According to SOPH Standard IV(C), investment professionals must make reasonable efforts to detect and prevent violations of laws, rules, regulations and the applicable Code and Standards by any person subject to their supervision or their authority. This means that companies must not only establish and implement written compliance procedures, but also ensure that these procedures are followed by monitoring, enforcing and revising them periodically.

The SEC recommends that policies and procedures regarding the use of social media address the following issues:

  1. Instructions for use: How will social networks be used? Which social media sites should be approved for use? What features can and cannot be used on each approved social media website?
  2. Content standards: What can and cannot be shared or posted on social media sites? What content or information should be prohibited or restricted?
  3. Monitoring: Who will monitor approved social media sites? How will they be controlled? How often will they be checked?
  4. Content Approval: Who will be responsible for approving social media content before it is published?
  5. Participation: Who will be allowed to participate on a social media site? What are the entry criteria?

Additionally, companies should consider who has social media profiles and contacts. As more companies use social media platforms to communicate with their customers, the line between what belongs to the company and what belongs to the individual employee has become increasingly blurred. The CFA Institute is working to answer this question as part of the revision of the 11th edition of the SOPH.

Please note that the content of this site should not be construed as investment advice, and the opinions expressed do not necessarily reflect the views of CFA Institute.

Michael McMillan, CFA

Michael McMillan, CFA, is Director of Ethics Education at CFA Institute, where he is responsible for the creation, research and development of educational content for CFA Institute members and investment professionals in the area of ​​ethics and professional standards. Previously, he was a professor of accounting and finance at the Johns Hopkins University Carey School of Business and the George Washington University School of Business. Prior to his career in academia, McMillan was a securities analyst and portfolio manager at Bailard, Biehl and Kaiser and Merus Capital Management. He is a Chartered Accountant (CPA) and a Chartered Investment Advisor (CIC). McMillan holds a BA from the University of Pennsylvania, an MBA from Stanford University, and a Ph.D. in accounting and finance from George Washington University. Thematic expertise: Analysis of financial statements · Standards, Ethics and Regulation (SER)