Mutual Fund Advertisements and Social Media

If you want to have a good fishing, go where the fish are

Much has been made about FINRA’s Regulatory Notice 10-06 and how that will affect the social media use by registered representatives. Looking beyond the broker/dealers, I thought it would be interesting to see what mutual fund companies are doing with social media. I’ve started seeing some mutual fund companies starting to dip their toes into web 2.0.

Key Regulations Governing Advertising of Mutual Funds

Mutual funds are highly regulated under the Investment Company Act and the Securities Act. The interests in the funds themselves are securities and are governed by the Securities Act. As a security, that means under Section 5.(b)2 of the Securities Act you can only use a prospectus to advertise it.

Under Rule 482, the SEC allows mutual funds some additional flexibility is advertising their products. If an advertisement meets the disclosure requirements of the rule, then the advertisement will be deemed a “prospectus.” (Which means you won’t be illegally selling securities.)

Required Disclosure under Rule 482

There is long list of requirements in the advertisement. Here are just some of them:

  • Point out that investors need to consider the investment objectives, risks, and charges and expenses of the investment company carefully before investing.
  • Explains that the prospectus and, if available, the summary prospectus contain this and other information.
    identifies a source from which an investor may obtain a prospectus and, if available, a summary prospectus;
  • You should read the prospectus carefully before investing.
  • Advertisements that includes performance data have to point out that past performance does not guarantee future results (along with extensive limitations on how you can disclose performance)
  • Money market funds must point that they are not federally insured and you can lose money. (Hello Reserve Fund!)
  • Disclosure statements can’t be in fine print


Advertisements then need to be filed with the SEC under Rule 497 or with FINRA. (Most do the FINRA filing.) You have to file the advertisement with  FINRA within 10 days of first use or publication [FINRA Rule 2210(c)].

How can you do all of this with web 2.0?

You can’t.

One key aspect of web 2.0 is that it allows anyone to be a publisher. But now you’re a publisher without any training on how to be a publisher. In the case of mutual fund companies, publishing will have to go through a long process of review and approval before content can be published. Failure to comply has serious consequences.

That doesn’t mean that mutual fund companies cannot use social media. It just means they can only use is it certain ways.

Syndicate Content

If you’ve gone through the trouble and expense of creating compliant content, you should make it available in as many ways as possible. You obviously can’t push all of the required disclosures through the 140 characters of Twitter. But you can send links back to your website where you can make all of the disclosures. If you have video, you can publish the video on Facebook and YouTube.

If you want to have a good day fishing, you need to go where the fish are. (See the picture above.) Push your content to potential customers in the places where they are. Some of them (many of them?) may be spending time on Web 2.0 sites.



Photo © Adrian van Leen for CC:PublicDomain

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11 Responses to Mutual Fund Advertisements and Social Media

  1. Pat Allen March 29, 2010 at 10:24 am #

    Doug, I’m a regular reader of your blog and tweets but especially appreciate your thoughts on this post. And, thanks for listing Rock The Boat Marketing as a source on the Putnam content syndication article.

    Regarding fishing where the fish are, mutual fund companies are no different than other brands in “losing” domain traffic to the social networking sites. That’s a topic we took a look at in detail in October.

    But while they’re subject to the same market forces, much more commitment is required on the part of the asset managers’ business, Marketing and Compliance resources to even tiptoe into social media. We commented about the ROI immediately after FINRA released its social media guidance.

    As you point out, Vanguard and few other firms are making inroads. Your readers might be interested in the Twitter list we maintain of Investment Managers with Twitter accounts. It’s a list of about 20 firms (Putnam and Pimco have two each).

    • Doug Cornelius March 29, 2010 at 11:36 am #

      Pat –

      Thanks for the additional information sources. There are lots of challenges faced by highly regulated industries when using social media. Unfortunately, the social media platforms themselves seem to have no interest in adding (or selling) functionality that would make it easier to comply with the regulations. That’s going to leave lots of companies on the sidelines.

  2. Nadine Boisnier March 29, 2010 at 1:20 pm #

    Great topic. I have many years of advertising review and compliance experience working for both a broker dealer and Registered Investment Adviser. All advertising came from a conservative point of view and there were many times we had to do multiple filings with the regulators depending on the piece. My friends at financial companies are all trying to figure out the best way to ensure compliance to handle the registered reps and their use of social media. Talking to the reps, they are all on board in wanting to use the new medium. I believe in this industry you can utilize social media in a cautious way and can stand out from the pack if you use it effectively. I look forward to seeing the changes in the industry and will follow it closely.

    Nadine Boisnier
    Compliance Officer

  3. Blane Warrene March 29, 2010 at 4:29 pm #

    Doug – great post and timely as just about every business model in financial services is wrestling with the strategy and tactics for integrating social media into their marketing, communications and networking workflow.

    To your response to Pat Allen’s comment – I would suggest social media solutions do exist and are responding to these needs. Our philosophy as a social media archiver at has been to both support the need for flexibility of users and how they create content while also having the right tools and features to capture that content for compliance purposes. That can both be pre-publication (what we call hold and release) as well as post publication where the content was pre-approved prior to publishing.

    Moreover our own backgrounds in the industry over two decades helped us attack the development problem with an informed perspective – awareness of the compliance, marketing and business development channels all with unique and often disparate requirements for using social media.

  4. Matt Simpson March 29, 2010 at 4:56 pm #

    So, let’s say I own a lot of stock in a particular mutual fund. And I also have a online reputation in financial investment circles. I’m not the company issuing the fund. However, I personally want to see it be successful. Can I post lots of articles online, making the funds look so fantastic that it’s tantamount to advertising? Can I create a publication-based advisory service where I recommend to all my subscribers that they get the stock? They could even pay for it, so I can claim that it’s what people want.

    hmmm…. sounds like Motley Fool?

    • Doug Cornelius March 29, 2010 at 6:52 pm #

      Mutual funds are little odd, because hyping the fund is not likely to change its price or improve its performance. The fund price is calculated based on the underlying securities it owns.

      Hyping a company to boost its stock price works. (Look at Apple.)

      The hype can create interest in the mutual fund cause an inflow of cash. But the success of the fund will still depend on what they do with that cash.

      The big part of the advertising regulations focus on how you can describe the performance of the mutual funds.

  5. Matt Simpson March 29, 2010 at 4:56 pm #

    Wow! How did your web site pick up my photo? I still haven’t figured that one out.

  6. Muneer August 24, 2010 at 1:33 am #

    There are companies like Fidelity, Vanguard, Washington Mutual that are advertising on sources like Twitter & Facebook, plus in the Google search results… This is Web 2.0 marketing. Almost every bank in the nation has mutual funds advertised on their website, which in turn receive millions of hits.

    Mutual funds aren’t all that bad either… You can generate a consistent 6% – 10% a year investing in secured high investment grade bonds of good companies with tons of cash flows… examples are utility companies or telecommunications.

    Roth IRA


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