Social media and the regulations that apply to financial advisor participation SocialMediaPuzzlecan be puzzling enough.

It doesn’t help when a top advisor publication leads the kind of discussion that took place Tuesday in the Investment News “Compliance-Savvy Ways to Use Social Media” Webinar. Deputy Editor Evan Cooper ended the Webinar by saying, “We may not have come to any kind of total definitive compliance-savvy ways to use social media, but I think we put the flashlight there in a way that we maybe hadn’t been shining it before.”

We disagree. It was a disjointed presentation that could add confusion and even apprehension to a topic on which the industry has been gaining understanding. It fell short of the information quality that long-time readers expect of Investment News.

Below are our notes, which include the insights and information that the Webinar provided and where the Webinar mis-stepped.

The panel included Julie Gebert, Compliance Assistant Vice President of Cambridge Investment Research, Inc., a broker-dealer whose pilot program is indeed identifying ways to use social media. Also on the panel was Erin Reeves, associate with Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. Reeves said clients of her “conservative” law firm were still developing their social media policies. Reporter Davis D. Janowski moderated along with Cooper. An LPL advisor who had been scheduled to take part was not able to participate “for Compliance reasons,” according to Cooper.

Broker-dealer adoption of social media

“Most of our clients have elected at this point not to allow their reps to do much in social media until they see how FINRA is going to enforce the rules,” Reeves said. “I think everybody is sort of sitting back and waiting for somebody else to take the first step.”

“To me,” said Cooper, “it seems as if there’s so much liability, why bother? Why risk it? For what? I guess in their minds [broker-dealers’] there’s so much potential liability as opposed to maybe some nebulous or uncertain benefits, given the fact that, well, they won’t say this but so many of the reps they don’t trust and they may do something crazy. Why put themselves out there? For what reason? Maybe that’s why they’re waiting.”

In a later reaction to Janowski’s comments on archiving options for large broker-dealers and wirehouses, Cooper said, “It’s just my hunch that they’re not going to be in the forefront of allowing reps to do this. I can’t imagine Morgan Stanley or Merrill Lynch saying, ‘Oh, sure…’”

We found this representation of the pace of adoption misleading. Large broker-dealers and wirehouses are on record as saying they’re interested in and working on social media.

At FINRA’s March 17 Implementing Compliance Practices for Social Media Webinar, Bank of America Merrill Lynch Senior Vice President and Compliance Executive Douglas Preston said “a number” of proof of concepts are being worked on right now in social networking, including for the securities business (Merrill Lynch).

LPL CEO Mark Casady on ICI Distribution panel--click on image to  go to page with video

LPL CEO Mark Casady on social media--click on image to go to ICI page with video

Distribution leaders were questioned point-blank about social media’s relevance at the May Investment Company Institute General Membership Meeting.

In response, LPL Financial Chairman and CEO Mark Casady said, “We see Facebook and LinkedIn as critically important to advisors,” (and we’ve since seen LPL’s social networking materials).

Morgan Stanley Smith Barney Managing Director and Head of Wealth Management Andy Saperstein said, “Social media is here to stay..It will change how we (advisors) do business.” He said a LinkedIn pilot was in process. For his part, Fidelity Investments Institutional Services Company President Peter Cieszko pointed to his firm’s commitment to mobile applications, Facebook, Twitter, LinkedIn. (Watch the video from the Distribution Changes and Challenges session on the ICI site.)

An update on Cambridge’s social media pilot

In June Cambridge announced the launch of a social media pilot and that it expected to be the first “big independent broker-dealer” to extend a social media initiative across its entire network.

According to Gebert’s Webinar comments, the pilot was based on the results of an internal task force survey of Cambridge “rep/advisors.” The advisors expressed interest in Facebook, LinkedIn and Twitter, which Gebert said was a distant third.

Six weeks in, the pilot involves 25 advisors producing the most activity on Facebook. “LinkedIn is a professional networking site probably not aimed at client gathering and Twitter some people are still trying to figure out,” she said.

So far so good, Gebert said. “The [archiving] technology is working as promised,” but advisors have a need for marketing support that was unanticipated. “They’ve been told so long that they’re not able to do this that they didn’t include social media in their marketing plans,” Gebert said.

“The reason it’s still a pilot” is that the firm is now putting together templates for advisors to use, developing white papers as resources and helping advisors identify client profiles, etc.

Asked for an example of a social media success, Gebert described an advisor in a large metro area with a weekly radio show and offering regular Webinars. Promoting a LinkedIn and Twitter presence along with Facebook updates that appear on his clients’ and clients’ friends pages has produced more referrals than the radio show or Webinars, she said.

Compliance review of the pilot groups’ social media accounts has not been burdensome, she said. But review volume reflects Cambridge coaching to advisors “that a little can go a long way.” Gebert shared her personal opinion that more than once-a-week updates could annoy followers and cause them to un-follow.

“Are we putting a policy and procedure in place to control [the number of updates posted]? No, it’s up to people to know their clientele, maybe those with heavy stock portfolios need to update more often,” she said.

Social media archiving solutions

Gebert said the firm is using Socialware to archive Facebook, LinkedIn and Twitter accounts. When rolled out across the network, the cost will be $20/month, which Cambridge intends to pass on to advisors. “The assumption is that an office will sign up rather than individual advisors,” she said.

Webinar attendees were no doubt lost trying to follow the wandering conversation that ensued when Cooper asked about other social media archiving solutions. This was a missed opportunity to educate, even at a high level. Archiving is the key enabler for social media participation and, as was noted, will involve the industry’s investment of millions of dollars.

Interest in understanding the differences between the many options is keen, but the moderators substituted speculation for preparation. We were surprised by the sloppiness of this discussion, which included a few mis-statements by the Investment News moderators and Gebert.

For a better researched presentation of the array of what’s available from Socialware, Arkovi, Facetime, Backupify, Smarsh and Autonomy, see a July 8 blog post written by an employee of an investment management firm.
Disclosure: Rock The Boat Marketing, our consulting business, recently completed a limited strategic consulting assignment for Arkovi. We believe that it deepened our understanding of the market for social media archiving solutions without compromising our perspective. Our business endorses no vendors.


Reeves acknowledged incoming questions about how the SEC and FINRA might differ in their review of advisor use of social media. SEC-registered advisors are largely believed to have more latitude.

“In our experience, the SEC has just as much focus on these things as FINRA does. They often piggyback on what FINRA does in terms of enforcement,” Reeves said. “Erring on the side of caution, I’d comply with the FINRA rules. Don’t try to be cute and get around it because we don’t know how they’re going to react.”

Cooper followed up by asking Gebert, “Why do you feel you can do these things?”

“It’s the technology and it’s there,” Gebert replied. “With the commitment from our executive management team to allow for the resources to be able to do this, I feel very confident…When social networking first came up, no one knew where to turn first. We think the easy answer for firms is to just say so. But you just really need to pick apart what each of the items underneath social networking are and take it to the lowest denominator…and all of a sudden it’s not confusing.”

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