Social Media Pitfalls: To “Like” Or Not To “Like”?

While social media outlets can be golden opportunities to market fresh ideas and garner real-time intelligence on how news resonates with the public, they can also become PR quagmires and regulatory pitfalls.

Take a look at recent news reports that chronicle episodes of the social media danger zone. An employee can tout a seemingly innocuous development on a social media site. But when it draws the attention of regulators for potentially crossing a line, the company could instead be left responding to a negative headline.

While there are some bright lines, there is some territory that isn’t so clearly defined.

The U.S. Securities and Exchange Commission, for example, has issued staff guidance this year for registered investment advisers trying to navigate these fine lines. The agency notes that there is a growing use of social media outlets by RIAs to “communicate with existing and potential clients, promote services, educate investors and recruit new employees.” It all sounds rather tame, but firms have been meting out appropriate policies to adhere to these guidelines – and sometimes still step over the line.

The SEC states, for example, that hitting the “Like” button on Facebook could be viewed as a “testimonial” under the Investment Advisers Act. The term testimonial is not, however, officially defined by the SEC. The staff only interprets it to “include a statement of a client’s experience with, or endorsement of, an investment adviser.” Inviting the public to “like” a bio posted on a social media site, for instance, could be viewed as a prohibited testimonial.

Third-party postings further complicate these scenarios. The SEC might take note of whether a firm allows viewers to post messages, whether they limit those third parties to “one-way postings,” or limit third-party postings to authorized users and ban the general public from interaction. Yes, the SEC will want to know what those policies are and how they’re monitored, and what safeguards are in place to avoid federal securities laws violations. The SEC has taken note of the variations in policies and procedures among firms, including multiple overlapping procedures, which may cause confusion.

It’s not always easy for a compliance team to monitor every move employees make. Real-time monitoring may be cost prohibitive for some, but necessary to contain potentially damaging content that has been broadly disseminated. Using firewalls to protect sensitive customer information and the firm’s proprietary information is also wise.

Social media communication is a constantly evolving, multi-party dialogue.  More people are using it every day, and the technology is quickly accelerating – its policies and their effectiveness need constant review. It’s a shifting landscape with shifting pitfalls, and firms need to find that fine line between effectively maximizing its power and drawing unwanted attention.

The bottom line? Think twice before you hit someone’s button or invite someone to hit yours.