Feb 7 U.S. financial advisers have nowhere to
hide when they break the industry's advertising rules while
chatting publicly on social media sites such as Twitter
In an era when simply posting a stock tip can get a broker
fired, U.S. securities regulators have repeatedly warned that
they are keeping a watchful eye on the social media practices of
advisers and their firms.
Some financial professionals break the rules anyway.
A case in point: The U.S. Securities and Exchange Commission
levied a $100,000 fine against adviser Mark Grimaldi and his
firm last week for misleading investors in two tweets about his
investing strategy's performance. The tweets claiming he
"DOUBLED the S&P 500 the last 10 years" took liberties with the
performance claims to boost his portfolio's allure, the SEC
While the promotional appeal of social media is
understandable, the risks of clicking that "post" button can be
high. Regulators typically view advisers' posts as advertising
or marketing, areas that are subject to many rules.
These rules come from the SEC and states, which oversee
investment advisers, and the Financial Industry Regulatory
Authority, the watchdog over brokerages and stockbrokers.
Posts that run afoul of the rules can lead to fines,
suspensions and bad publicity even if the violation is
Moreover, social media posts, unlike printed brochures, are
easy to find. For example, regulators can search Twitter for key
terms such as "guarantee" or "promise" to catch potential
violations, said April Rudin, president of the Rudin Group
financial services marketing firm in Fort Lee, New Jersey.
To be sure, the largest securities firms have strict
policies that range from banning advisers from using social
media to restricting them to using only pre-approved content.
These firms also typically hire outside services to monitor
advisers' social media use.
Smaller advisory firms and independent brokerages, however,
are more likely to get in trouble because many do not have a
social media plan, compliance professionals say.
A good plan should include everything from guidance on what
advisers should post to how the firm will meet other mandates,
such as monitoring and saving those communications.
The SEC's $100,000 fine on Jan. 30 against Grimaldi and
Navigator Money Management Inc, his Wappingers Falls, New York,
investment advisory business, shows how a couple of tweets can
Grimaldi and the firm used newsletters and Twitter in 2011
to plug the past performance of a mutual fund he managed, Sector
Rotation, the SEC said. The agency focused in part on
two tweets that claimed credit for the success of a performance
model during a 10-year period, but Grimaldi and the firm were
not involved in the strategy for part of that time.
Navigator must now display a long disclosure about the SEC's
case on its website and ramp up its marketing controls.
Grimaldi and Navigator, in which he owns a majority
interest, neither admitted nor denied the SEC's findings, the
SEC said. Grimaldi did not return a call requesting comment.
Other mistakes can also land advisers in the hot seat.
FINRA, for example, zeroed in on a statement from former broker
John Gourdin's LinkedIn profile that said he worked "to create
tax-advantaged, wealth building and protection plans" for
businesses and individuals," according to a regulatory document.
The statement appeared in a LinkedIn summary that was not
balanced and did not provide a sound basis for the public to
evaluate the claims, FINRA said in a Dec. 2 settlement. That and
other statements Gourdin made on websites that his firm did not
approve led to a $10,000 civil fine and 60-day suspension, the
Gourdin, who is based in Maryland, told Reuters that he was
using the profile to promote his insurance business, not his
brokerage business. He has since left the securities industry
but continues to sell insurance.
To avoid regulatory hassles, advisers at firms that already
have social media policies in place should stick to those rules.
Under a firm's policy, for example, posting a stock tip
could lead to dismissal. The firm would then have to disclose
the adviser's termination to FINRA, which may then discipline
the adviser, compliance professionals say.
Advisers who run smaller firms that do not have a social
media plan need one, said Rudin, the marketing professional.
Compliance performance rules are particularly tricky and may
be so complex that required disclosures cannot fit into 140
Refraining from incessant posting can also limit problems.
Rudin tells clients to write posts in advance for sites such
as Twitter and Facebook and peg them to seasonal events,
such as tax planning, or news about their practices.
Helen Modly, a wealth manager at Focus Wealth Management Ltd
in Middleburg, Virginia, tweets occasionally about articles she
finds interesting, and advisers at her firm never use their
personal Facebook pages to discuss work.
Nor do their individual LinkedIn pages promote specific
products or strategies. Above all, Modly said, they do not
mention the one word that is likely to get advisers in trouble:
"We don't use the word, 'guarantee.'"