February 7, 2014 / 6:15 PM / 4 years ago

COMPLY-When tweeting makes discipline easy for U.S. regulators

Feb 7 (Reuters) - 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 and LinkedIn.

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 said.

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 inadvertent.

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 go wrong.

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 regulator said.

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 Twitter characters.

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.'”

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