Advisers Meet Compliance's Hurdles to Using Social Media

Retirement plan advisers, like the financial advisory industry as a whole, have shown some hesitant enthusiasm about social media, whether by simply starting a blog about 401(k)s or using LinkedIn to fish for clients. However, the elephant in the room is that it’s not completely clear to advisers whether their social media activity is in compliance with their firms or broker/dealers. A recent LederMark Communications survey of financial service professionals (most of which were financial advisers) found more than half (58%) said compliance concerns are an impediment that keeps them from making full use of social media for their businesses. Furthermore, 39% said company policy precludes their participation.

The Financial Industry Regulatory Authority (FINRA) released guidelines earlier this year for broker/dealer firms who want to participate in social media and the Securities and Exchange Commission (SEC) has been pretty mute about the issue (see “Think before You Tweet”). But even with FINRA’s guidance, advisers have to deal with the compliance of their broker/dealers.

Last year Todd Lacey, founder and president of The (k)larity Group, a National Retirement Partners (NRP) member firm based in Athens, Georgia, was enthusiastic about his new blog related to 401(k)s. It didn’t cross his mind whether it would be OK with NRP, but after a few entries, the “hammer” came down and he was told in an e-mail by his supervising principal that blogs are not allowed and the blog must be taken down immediately, he told PLANADVISER. Lacey argued that the blog wasn’t about investments—a lot of his business is based more on the plan operation consulting side and the blog covered broader themes about the philosophy of retirement—but NRP said blogs aren’t allowed in any form or fashion.

Lacey said he understood where NRP was coming from and that it isn’t comfortable with advisers “brain-dumping” without the ability to review it. “But at the same time, there are plenty of advisers who have a blog,” he noted. And he is right—without naming them, there are many advisers anyone can find all over Web 2.0 who are clearly identifying themselves as financial advisers and using social media to connect with investors in some way. The most active members of social media might be 100% registered investment advisers (RIAs), but others are operating under the radar of their broker/dealers. Lacey said if he ever goes down the path of being a RIA firm, he would reinstate the blog. “There’s no question in my mind that [social media] is going to be a critical part of not just our business but every business going forward.”

Tina Nofzinger, marketing manager at NRP, said that because of supervisory challenges surrounding the use of social media, NRP Financial doesn’t permit advisers to maintain or participate in chat rooms, blogs, or social networking sites. “However, we continue to monitor for advancements in technology systems that may enable us to effectively meet applicable regulatory requirements in the future,” she said in an e-mail. 

Blurred Lines

It might not always be clear about what is personal and what is for business and therefore under the jurisdiction of an adviser’s firm. For instance, LinkedIn is popular for any professional, including advisers, to keep a stagnant business profile without necessarily actively marketing themselves. “It’s almost like a business card on the Web,” said Tony Ciocca, managing director at Institutional Investment Consulting, an NRP member firm, based in Waterbury, Connecticut.

One retirement plan adviser, speaking on the condition of anonymity, said she uses LinkedIn but has avoided asking her firm whether it’s allowed—figuring it’s easier to ask for forgiveness than get permission. “If you ask the question, you have to be prepared for them to tell you no,” she said. Her firm hasn’t blocked the site yet on company computers, so she continues to use it, just not for client communication.

Twitter is newer and a little less popular for advisers, but many show some interest. Ciocca bargained with his broker/dealer firm Cantella in order to approve Twitter. “I’ve been trying to get them to try to do Facebook or Twitter for about a year and a half now,” he said. Facebook was a no-go, but Twitter got the OK with the prerequisite of a limited number of pre-approved tweets that didn’t mention investment information. “It doesn’t allow us to be as immediate as I might like to be, but at least it’s a step in a right direction,” he said.

Ciocca said recent guidelines by FINRA helped his broker/dealer feel more comfortable. However “there are a lot of firms that are still leery.” FINRA’s guidelines provided some clarity but do require a lot of compliance monitoring without exactly giving any directions for how firms should do the monitoring. “Even though FINRA came out with those guidelines, I think there’s still a lot of hesitancy from the compliance departments and broker/dealer firms just because of all the potential monitoring they’re talking about,” Ciocca said.

Wirehouse Hesitancy

The big wirehouse firms don’t seem to be ruling out social media, but are far from embracing it. At Morgan Stanley Smith Barney the social media policy is under review, and in the mean time, brokers are blocked from using sites such as LinkedIn and Facebook on company computers, according to Christine Pollak, spokeswoman for Morgan Stanley Smith Barney. Advisers could be accessing those sites from personal computers and have their affiliation with Morgan Stanley Smith Barney on those sites, but right now they can’t use them for business purposes, she said.

Bank of America Merrill Lynch couldn’t be reached for comment, but a simple search on LinkedIn finds that, like Morgan Stanley Smith Barney, several Merrill brokers are on LinkedIn with their affiliations listed, though that doesn’t mean they use it for business. Wells Fargo Advisors “aligns with the guidelines that FINRA has currently established concerning social media,” spokeswoman Teresa Dougherty wrote in an e-mail. She couldn’t be reached for further comment about whether that implies advisers can or cannot use social media. 

Technology Solutions?

The problem for broker/dealers is managing the compliance FINRA requires. Enterprise solutions such as Smarsh and Socialware are emerging to help firms monitor and archive social networking sites. A new free site for advisers called linkedFA claims to be FINRA-compliant and address the compliance concerns of advisers and their firms (see “Social Networking Site for Advisers Says It Is FINRA-Compliant”). While FINRA hasn’t endorsed the site (or any software, for that matter), linkedFA actually promises to pay any fines levied on a financial advisers by FINRA due to any electronic recordkeeping violation as a result of the adviser’s use of linkedFA.

In order to attract big broker/dealer firms, linkedFA recently added a compliance feature providing compliance officers with automatic daily reports on financial advisers’ activity that is integrated with the firm’s internal e-mail capturing and monitoring software (see “linkedFA Unveils Compliance Update for Brokerage Firms”).

linkedFA doesn’t address the problem of how to monitor advisers on mainstream social media, but could be one sanctioned solution for advisers to communicate with their clients (investors have to be invited into an adviser’s network).

CEO Brian Byrne said many brokerage firms realize social media is not going away and they have to figure out a way to deal with it. Compliance might be saying no, but marketing and sales personnel understand that social media is an inevitability, he said. "Most investors are using social media and using the Internet to investigate personal finance," Byrne said. "[Firms] realize that they have to use social media to take control of the conversation."

What's Next?

Many retirement plan advisers eager to use social media are out of luck until their firms feel more comfortable with social media and begin to allow use in some capacity. “In a lot of ways, this has to come from the senior leaders,” said Elmer Rich III, principal at Rich and Co., which does sales and marketing consulting for RIAs, third-party administrators, and other financial firms. But advisers can be a steady voice in the leaders’ ears, staying sympathetic to the legal concerns but keeping leaders informed about what’s happening on social media, he added.

If there are guidelines in place that people have to sign as part of employee handbook, social media shouldn’t be looked at as an obstacle, said Christine Mikel, a marketing consultant at Rich and Co. And yet, financial services firms haven’t “quite gotten social media into the fold,” Mikel said. “They haven’t incorporated it into their employee guidelines quite yet. There’s fear.” Rich added: “On the other hand, there are inexorable forces that make this a done deal…The arrow of technology never goes backward.” He noted that clients—whether institutional or high-net-worth—are using social media, whether financial firms are on board or not. Rich asserted that like the fax, e-mail, and Web site before, the industry has no choice but to adopt the latest mode of communication; the market demands advisers and broker/dealers get fluent in social media or be left behind.