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Your Mutual Fund Provider May Start Blowing Up Your Twitter Feed

Rob Silverblatt

If you're a mutual fund investor, Vanguard wants to help you save for your #retirement. Meanwhile, on March 14, Fidelity wanted to make sure you enjoyed your #PiDay.

Over the course of the past few years, mutual fund providers have steadily increased their presence on social media outlets. Indeed, it's not uncommon for investors to get updates from fund companies whenever they sign into Twitter or Facebook, or even when they browse YouTube. Vanguard, for instance, has more than 85,000 followers on Twitter. Since the company launched its account, it has tweeted more than 7,000 times.

Although the use of social media is expanding, it has been kept in check largely by uncertainty among mutual fund providers about what they can send into cyberspace without having to notify financial regulators. For providers, the question of whether or not they need to keep the Financial Industry Regulatory Authority (FINRA) informed of their tweets or Facebook posts is of huge importance because many would rather go radio-silent on social media if the choice is between doing that and subjecting themselves to increased regulatory burdens.

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Earlier this month, however, the Securities and Exchange Commission's staff issued guidance about what it considers to be the types of communications fund companies and other financial services providers can engage in without having to worry about keeping FINRA in the loop. For instance, according to the SEC's staff, a fund company wouldn't need to report a tweet that directs investors to a website where they can find out about how the company's funds are performing. Similarly, "an introductory statement not related to a discussion of the investment merits of a fund that forwards or includes a hyperlink to general financial and investment information"--for example, "The election is over, what is next for our economy? See our report analyzing the elections."--is also acceptable.

The staff guidance also talks about situations in which fund companies can answer questions posed to them on social media without triggering reporting requirements. Broadly speaking, companies have more latitude to respond when they merely direct individuals to the appropriate website or phone number.

Just as important, the SEC's staff gives examples of communications that would, in its view, have to be reported to regulators. One common theme is that communications that offer investment advice have to get reported so regulators can make sure the information doesn't mislead potential investors. For instance, a fund company that wants to use social media to say, "Looking for dividends? Think global and consider our new Global Equity Fund" would have to report that communication.

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So what does all this mean for mutual fund investors? With millions of investors looking online to get information about everything from day trading to saving for retirement, investment companies--including mutual fund providers--are looking for ways to use social media to capture interest. In light of the SEC staff's new guidance, these companies may feel more liberated in their attempts to do just that.

For instance, Chuck Freadhoff, a spokesperson for American Funds, says the company, which has a presence on Facebook, "think[s] a lot" about whether its online communications require disclosure to FINRA. While he hasn't yet seen the new SEC guidance, he notes that "having more clarity [about reporting requirements] would certainly be useful."

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According to Freadhoff, one of the main benefits social media can offer investors is the ability to connect them with interesting information. On the American Funds Facebook page, investors can find everything from links to information about the company's offerings to news stories or graphs of general interest. For instance, one of the company's recent posts was a chart about beer consumption in various parts of the world.

While such communications would have seemed odd a decade ago, they're increasingly normal now that fund companies are vying for Facebook likes and Twitter followers. And while it remains to be seen how the use of social media will evolve, one thing is clear: the trend is here to stay.

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