Investors Increasingly Interested in Advisors' Social Media Capabilities

Jim Whimpey

If you haven't gotten the message that social media is important for financial advisors, you are a decade out of step. Countless conferences, whitepapers, articles, consultancies, webinars and research reports have flooded the industry in recent years, all devoted to helping advisors understand and navigate social media.

It's understandable that a revolutionary communications tool would be of importance not only to current advisors, but to the future of the industry. The technology has far outpaced regulators ability to ensure that advisors using it are compliant with the rules of the road regarding communications, endorsements and recommendations, and as a result, advisors are still largely reluctant to embrace the change.

Consider that about 34% of investors between the ages of 21 and 47 said it was important for their advisors to have a social media presence, according to a recent survey by Fidelity Investments. But because of compliance concerns and other factors, only 12% of financial advisors surveyed by Fidelity use Facebook and only 6% use Twitter.

To help advisors navigate the complicated and changing compliance regulations associated with this medium—which more than 75% of advisors said made their jobs more difficult—Fidelity recently integrated a risk a risk & compliance hub for its National Financial broker-dealer clients using the Streetscape workstation.

The new hub offers social media oversight capabilities, as well as automated trade review, post-trade surveillance tools and employee training, according to Fidelity.

Specifically, the tool has a pre-trade rules engine and social media review option for risk management officers that help firms comply with FINRA’s rules requiring advisors to retain all incoming and outgoing communication, including conversations made employing platforms such as LinkedIn, Facebook and Twitter.

 “Broker-dealers face a growing array of challenges in managing the evolving compliance and risk landscape,” said Richard N. hart III, head of National Financial’s platform technology division.

“Simply keeping pace with required reporting and monitoring can make it difficult for firms to focus on offering compliance around new communication strategies like social media.”

Under FINRA rules, emails or instant messages—which includes tweets sent over Twitter—sent to 25 or more prospective retail customers are classified sales literature and subject to restrictions.

The SEC has also weighed in on the issue of social media, issuing a guidance in January that outlined a number of safeguards firms should take—including usage guidelines, content standards and monitoring policies—to avoid any securities violations. 

With these guidelines in place, Fidelity recommended that firms needed to take steps to minimize their risk. Firms should update their compliance manual regarding the procedures associated with the use of social media.

Firms should also be careful that they do not inadvertently cause clients to give testimonials through the “like” function on Facebook and the “endorse” component of LinkedIn.

If an advisor makes a specific statement on Facebook and someone hits the “Like” button, it may be considered a testimonial, MarketCounsel’s Daniel Bernstein said in Fidelity’s report. The same could apply to clients using the “recommend” or “endorse” on an advisor’s LinkedIn profile, he said.

“The new risk & compliance hub enhancement to the Streetscape workstation may allow broker-dealers to more confidently operate in today’s risk and compliance environment while also taking advantage of new marketing channels,” Hart said.