The Securities and Exchange Commission's Division of Investment Management has issued guidance intended to clarify when mutual funds and other investment companies should file social media materials for review by the Financial Industry Regulatory Authority.
These entities are required to file certain advertisements for review by FINRA. According to the Division, “out of an abundance of caution,” many are doing so unnecessarily. In response, its new guidelines provide examples of the kinds of communications it believes would trigger a filing requirement, as well as those that would not.
“Whether a communication needs to be filed depends on the content, context, and presentation of the particular communication,” the advisory says, explaining that a key determination is whether a communication is merely a response to a request or inquiry, or forwarding previously-filed content.
The Division views the following as examples of interactive communications that generally wouldn't need not be filed:
- An incidental mention of a specific investment company or family of funds not related to a discussion of the investment merits of the fund. Example: “Fund X Family of Funds invites you to their annual benefit for XYZ Charity.”
- The incidental use of the word “performance” without specific mention of some or all of the elements of a fund's return. Example: “Click on this link where we provide full details of our yearly performance since inception.”
- A factual, introductory statement that includes a hyperlink to a fund prospectus. Example: “We launched two new emerging market funds this week; more information about them is available here <website url>.”
- An introductory statement not related to a discussion of the investment merits of a fund that includes a hyperlink to general financial and investment information, such as discussions of basic investment concepts or commentaries on economic, political or market conditions. Example: “Here's a Q&A with our Portfolio Manager, John Doe, regarding his views on the economy for 2013.”
- A response to an inquiry by a social media user that provides discrete factual information not related to a discussion of the investment merits of the fund. The response may direct the user to the fund prospectus, to access information filed with FINRA, or provide contact information (phone, e-mail).
The following are examples of interactive, social media communications that should be filed pursuant to Section 24(b) or Rule 482 of the Investment Company Act. The former prohibits investment companies from transmitting any advertisement, pamphlet, form letter, or other sales literature sent to prospective investors unless they have been filed with the Commission within 10 days of the transmission. The latter requires registered investment company performance advertisements to be filed.
- A discussion of fund performance that provides specific mentions of elements of a fund's return (5- and 10-year performance) or promotes returns. Example: “Fund performance rebounded strongly during the third quarter of 2012.”
- A communication initiated by the issuer that discusses the investment merits of the fund. Examples: “Looking for dividends? Think global and consider our new Global Equity Fund” and “As you plan for retirement, consider our new life-cycle fund <website url>.”