Internet: Update the rules?

A statement from IIROC indicates there are no plans to update the older rule in the wake of a recent analysis of a sample of dealer member firms active on social media.

However, the speed with which information is distributed on social media is different from static advertising, says Angie Soutar, compliance officer at Leede Jones Gable Inc. in Calgary. She would prefer a rule more tailored to social media use. “Being electronic and being instantaneously out there for whomever to see changes the game,” she says.

Peter Kahnert, senior vice president of corporate communications and marketing at Toronto-based Raymond James Ltd., says that much has changed since 2011 and financial advisors are more aware of social media and how they can use it to engage clients.

Social media is a relationship-building tool within the financial services sector – not a sales platform – and that should be considered in developing policy governing the use of the platform by advisors, Kahnert says.

IIROC undertook its analysis of some dealer members’ oversight procedures to gain a better understanding of how well those firms were complying with the advertising rule in connection with their social media practices. The analysis was discussed in IIROC’s compliance priorities report for 2015-16 released in February.

The review found that some firms have extensive social media procedures that include mandatory staff training and often involve automated tools that assist in approval processes and record retention. However, other firms have minimal supervision.

Although there are areas in which practices in some firms can be improved, the current rule still works, says Sandra Blake, IIROC’s vice president of business conduct compliance.

However, Kahnert says, social media should be understood as being more of a networking and branding tool than as a way of distributing sales literature.

Greater recognition of elements that are unique to social media is needed, instead of the current tendency to try to categorize them within elements of traditional advertising, Kahnert says.

He uses the example of “liking” or sharing a social media post, which may be viewed as an endorsement of that user’s post by IIROC and similar to publishing a client endorsement on an advisor’s website.

“That’s not necessarily an endorsement, as far as I’m concerned,” Kahnert says. “[But ‘liking’ a post] allows the individual to network further with others in that group.”

Raymond James advisors are free to “like” or “retweet” a post because the firm monitors these activities carefully, Kahnert notes.

He would like to see IIROC work with the industry to create a policy that reflects an understanding of social medial on its own merits, although he recognizes that the lightening speed of the medium’s development can be problematic: “[That speed] puts a lot of onus on IIROC to keep pace with everything and also on firms like ours.”

IIROC is exploring a way to help member dealers comply with the existing business communications rule as it relates to social media. The self-regulatory organization will produce a webcast this year to provide tips on complying more fully with the rule, says Blake.

Soutar hopes IIROC’s webcast will provide clarification on the rules surrounding product suitability and how it applies to the sharing of articles that mention specific companies via social media.

Leede Jones Gable does not allow its advisors to share articles that refer to any specific companies because that action may be considered a recommendation and, therefore, the advisor must ensure that the referenced company’s stock is appropriate for anyone who sees that article, says Soutar.

“We have limited what advisors can send to generic, market-type articles,” she says. “[Our advisors] can’t send out anything that is company-specific because they can’t control who it is going to.”

IIROC also is wants firms to implement more staff training on use of social media and checking for unauthorized online profiles, says Blake. What IIROC will not do is require a standard method of supervision, such as the use of a third-party social media management software, for dealer members’ social media use.

“We try to be flexible as a regulator, especially to our smaller dealer member firms. So, what we’re looking for is really general compliance with our existing rules,” Blake says.

Although third-party software that captures social media activity is important in helping firms comply with IIROC’s record-keeping obligations, that IIROC would not mandate their use for all firms is no surprise, says Tim Banks, a lawyer with Dentons LLP in Toronto who advises his clients on data governance.

“IIROC may be concerned about imposing a solution that might require significant financial investment if the organization can come up with its own policies and procedures for complying in some other way,” he says.

Thus, smaller dealers that are unable to implement these technological solutions must think carefully about their social media strategy, suggests Banks.

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