Advisers need flexible social-media guidelines

Here is a brain teaser for you: How should compliance rules apply to financial advice professionals who use popular social-media sites such as Facebook, LinkedIn and Twitter? The issue stumps me.

From a common-sense point of view, of course, the answer is easy.

Financial advisers should be able to take part in the new medium as anyone else does — to share ideas, educate, respond, and expand financial and investment knowledge. But like others, advisers shouldn’t use social media to promote themselves or do anything for which they would be fined in any other medium.

In the highly regulated world of financial advice, however, common sense doesn’t always prevail. At the moment, the rules regarding the use of social media by the brokerage side of the advice business are hazy at best.

The Financial Industry Regulatory Authority Inc. is the grand arbiter of what registered personnel can and can’t say in public, and it is trying to figure out what the rules should be for public speech on social-media sites and blogs.

A Finra task force has been huddling for a few months to grapple with the issue, and its results will be announced and discussed during a Finra webinar March 17. (If ever there were a compliance webcast you could call exciting, this one should be it — except, of course, for any compliance webcasts that InvestmentNews conducts.)

One has to hope that the folks on the Finra task force are adopting a common-sense and flexible approach to social media that won’t impede relevant communication. It would be ironic if at a time when the investing public needs more information than ever — and the technological tools are available to make that information readily available — the grand overseers of the securities industry decided to take a restrictive approach to its use.

Remember how well that worked for the Soviet Union?

Although specific social-networking guidelines are pending, Finra is very clear that all communication used by way of the Internet, including social networks, must be held to the same standard as any personal or written communication. For compliance purposes, therefore, electronic communication should be considered the equivalent of correspondence, a public appearance, an advertisement or sales literature.

According to Finra’s website:

• Publicly available websites of registered personnel or firms are considered advertisements.

• An e-mail or instant message sent to 25 or more prospective customers is considered sales literature.

• An e-mail or instant message is considered correspondence if it is sent to a single existing or prospective customer, an unlimited number of existing retail customers and/or fewer than 25 prospective retail customers (firmwide) within a 30-day period.

• Password-protected websites are considered sales literature.

• Chat room discussions are considered public appearances.

The reason that so many firms have barred employees from using social media and web communication is because compliance departments typically have no way to preapprove impromptu communications or to capture and supervise those communications once they occur.

Financial services firms are obviously hoping that the Finra task force will address these issues and create greater clarity for the use of social networks, which would likely increase their usage.

Social media may seem faddish, but all signs point to its staying power. Twitter continues to barrel across the social-media landscape like an avalanche, and there already are more than 300 million active Facebook users, as well as some 50 million registered users of LinkedIn. (By the way, I invite you to join the InvestmentNews LinkedIn group and to register for our Jan. 26 webcast on using LinkedIn. Click here to register for the free event, which will take place at 4 p.m. est. tomorrow.)

I wish the Finra task force well and look forward to its findings, which I hope will be a model of enlightened 21st-century regulation.

Jim Pavia is the editor of InvestmentNews.

Related Topics: ING Group, Just Thinking