Think you’re alone when it comes to grappling with online social media? Think again. A new study by an Austin, Tex.-based company has found that 43% of financial advisors across North America who use social media are either operating without a policy or are unaware if one is in place.
Another 39% of the study’s respondents that use social media are prohibited from using Facebook, LinkedIn or Twitter.
Says Chad Bockius, CEO of Socialware Inc., which conducted the study: “The results of the study are a reflection of the value in these tools for an advisor who is trying to grow their business.”
Clearly, there’s a vacuum when it comes to compliance issues and social media. U.S. regulators, at least, have already taken action. In January, the Financial Industry Regulatory Authority issued specific guidelines on communicating with clients via social media networks. For now, however, it appears that Canadian regulators are taking a “wait and see” attitude, relying on existing policies for dealing with electronic communications, most of which were developed for email.
FINRA issued an eight-page notice in response to questions and concerns from financial services firms — what to do about communication, compliance and record-keeping when using the Big Three social media megasites: Palo Alto, Calif.-based Facebook Inc.’s Facebook, San Francisco-based Twitter Inc.’s Twitter and Mountain View, Calif.-based LinkedIn Corp.’s LinkedIn.
Canadian regulators are moving much more cautiously, says Connie Craddock, vice president, public affairs, with the Toronto-based Investment Industry Regulatory Organization of Canada: “You can’t change the rules every time a new technology comes out.”
Karen McGuinness, vice presi-dent of compliance at the Toronto-based Mutual Fund Dealers Association of Canada, agrees. “We don’t tailor our rules to a specific form of media,” she says. “Our rules provide a framework for advertising, and those general principles should be applied to all social media.”
This isn’t the first time the financial services industry has had to deal with a new mode of digital communication, adds Craddock. “When email came into use,” she says, “firms came up with software and ways to keep the records of emails advisors were [sending] to clients then.” The same process will have to occur with social media, she says.
Compliance around the use of social media websites for business purposes boils down to a fairly simple principle: records must be kept of all communications with clients via social media networks. “[The firms] need to track communications,” Craddock says, “so they can know that advisors are communicating accurately, fairly and honestly with their clients.”
Although the MFDA has considered issuing a formal notice about the need to keep track of social media conversations, it’s not on the priority list, says McGuinness, who adds that the MFDA’s current policies dealing with advertising should be adequate to address all forms of communication technology.
@page_break@However, like FINRA, the MFDA and IIROC may soon find themselves pushed to address the issue more formally, predicts Ellen Bessner, a partner with law firm Cassels Brock & Blackwell LLP in Toronto. “FINRA issued a notice because there is confusion on the application of its existing rules and how to apply them to social media. We may come to a point where we will need to clarify the issue.” So far, in Canada, she adds, greater explanation has only been available on a case-by-case basis.
Firms should also be taking the initiative in this area, according to the Canadian Securities Administrators. Says Sandy Jakab, director, capital markets regulation, with the B.C. Securities Commission: “Our expectation is that firms will turn their mind to social media and create a policy or procedure that deals with it, even if it means prohibiting it as a form of communication with clients all together.”
But ignoring the problem may ultimately be the riskiest course of action. “If you don’t have a social media policy in place,” McGuinness says, “the more risk you are taking on as a dealership, because the dealer is still responsible for any advisor communication going out there.”
At least when a firm puts a rule in place that bans the use of social media, the firm is demonstrating that it has taken reasonable action in setting out limits for its advisors.
The main risk, of course, is that unmonitored advisors could engage in activities that are prohibited by a firm. For instance, it would be relatively easy for an advisor to get involved in “selling away” — which refers to an advi-sor selling financial products that are not available to clients through the dealership. “It’s more difficult to catch that practice when they are using a social media site,” says McGuinness. While no cases dealing with selling away have arisen so far, considering the popularity of these sites, she adds, “It’s only a matter of time.”
Any social media policy should specifically address the type of content that a firm will be comfortable with. This means distinguishing between static and interactive content, a distinction that FINRA outlines in its notice. “Static” content refers to one-way communication, such as creating a blog or website. “Interactive” content refers to two-way media, such as a Twitter update that people can read and respond to with a post. Says McGuinness: “The more [a social medium] is like a web page, with a bunch of information and clients can contact the dealer through regular channels, the less can go wrong.”
When drafting a social media policy, smaller shops are likely to have a harder time than the big bank-owned firms, observes Bessner. Unlike bank-owned firms, at which advisors access the Internet and social media sites through their dealer’s computers, small shops are not always set up the same way.
Advisors at smaller dealers are more likely to link to the Internet using a connection that is outside the firm, making it very difficult for a small dealership to monitor how its independent advisors are engaging in social media.
This can create a catch-22 for smaller dealers. “They cannot draft a policy they cannot supervise,” Bessner notes. For example, if a small firm bans its advisors from using social media, the firm is unable to ensure those advisors are always in compliance with the ban, explains Bessner.
IE
Bringing the cloud down to earth
It remains unclear how firms will monitor and record client communications on social media
- By: Olivia Glauberzon
- June 28, 2010 March 1, 2019
- 11:10