example, Cambridge Investment Research, with some 2,400 advisors on social media, permits them to post on Twitter, LinkedIn, and Facebook, subject to a post-use review. Others, such as Commonwealth Financial, prohibit product recommendations. The majority of Commonwealth's 1,400 advisors operate on at least one social media platform. At LPL Financial, more than 5,000 of their advisors operate on some platform: 36 percent on LinkedIn, 10 percent on Facebook, and about 6 percent on Twitter, former Chief Marketing Officer Joan Koury says. LPL advisors are required to get pre-approval for YouTube videos but, other than that, only static content needs to be approved.
▪ Asset Managers– Asset managers' use of social media truly depends on their audience. I recall meeting with a top consultant to the John Paulsons of the world who said: “They'll never be on social media. They prefer to keep private and operate with their own closed networks.” But other asset managers are embracing social media – indeed, they view it as a more efficient way to distribute education, research, and other content more efficiently. “It's easier than going here to Schwab and there to Fidelity to post our content,” one CMO told me. For now, CMOs and even CEOs at asset management firms tend to view it as an opportunity to build their brand and compete, for the first time ever, against larger, more established firms. As new consumer-oriented hedge funds are developed, we expect that they, too, will embrace social media.
▪ Independent Financial Advisors– Independent financial advisors have an easier time: Many are essentially their own compliance officers. That means no approvals and a more timely ability to get in on trending news or react to a client or prospect. Take financial advisor Jim Ludwick, CFP, formerly with Bank of America and now running Mainstreet Financial Planning. He's tweeting regularly and sending summaries of his top personal finance tweets to his followers. Or Winnie Sun, of Sun Group Wealth Partners, who reports how she's strongly built her client base through social media and snagged a $31 million client through LinkedIn. Indeed, Putnam found that some 29 percent of advisors had acquired a client with more than $1 million in assets via social media.
Clearly, different segments of the financial industry demonstrate wide differences in the degree to which they are embracing social media. But the involvement of individual advisors or firms will depend to a great extent on their ability to adapt to some of the changes already under way. As you or your firm look to use social media, what are some of the key things to watch for?
▪ More communications to record– Whether you're a compliance officer or technology leader, you'll have to address the massive amounts of content that may require approval and will certainly require archiving.
▪ More internal partnering– Firms that are successful work hand-in-hand with their compliance officers. Today's CCOs recognize they can't be gatelockers when the world is quickly moving ahead. Successful firms are working together to build a mutual understanding of the business case.
▪ Increase in data collection– As new laws open up the doors to product marketing online and as investors adopt social interactions for decision-making, we can expect a greater opportunity to capture data. This could be data at the government level or even firm level – data that can be used to detect the next Bernie Madoff or ensure that investors are matched up with suitable products.
▪ More regulatory direction– Reed Hastings, the CEO of Netflix, drew the SEC's attention in 2012 when he put up a Facebook post that referenced a big increase in the firm's streaming hours – an announcement that was promptly followed by a sharp jump in the stock's price. In the end, the SEC opted not to file charges against Hastings; instead, it said that disclosures on social media were appropriate as long as investors were alerted in advance to which channels on which they could expect to receive such information. We continue to see more timely comments from nearly all key agencies, and we also see their presence at industry events, providing more proactive guidance perhaps than ever before. The SEC also made it plain that CEOs are always speaking for the firm when they speak about the firm. Hastings' tweets were attributable to his firm.
The financial industry has often felt hogtied and handcuffed by compliance issues in the past. The arrival of social media on the landscape – a game-changing dynamic that both regulators and financial professionals are still getting their arms around – in many ways has exacerbated the tension wealth managers feel as they plan for business in the twenty-first century. And yet the history of the industry shows that it can, and does, adapt. The tools exist for the advisor who wants to move forward.
Chapter 3
What Are the Tensions Between Social Media and Regulation?
When considering the use of social media in the financial advisory space, it's hard not to think about what an odd couple they make. Social platforms allow people to share any thought that comes into their heads with an audience that numbers typically in the hundreds or thousands of people. By comparison, the financial industry is heavily regulated, particularly where communication is concerned. Advisors and their firms are held to account for the way they present themselves on social media, since investors on the Web can be as easily misled as those of 30 or 40 years ago who read bogus investment pitches in newspaper or magazine ads.
Indeed, nearly 75 percent of financial advisors report working for a firm with a written social media policy, and 82 percent of these advisors say the policy restricts social media use or bars it outright. Advisors who want to use social media more actively in their businesses could be excused if they felt a chill in the room.
And yet, consider the odd couple metaphor a little more. At the end of the day, two people with intrinsically different world philosophies and lifestyles still manage to live together. Likewise, financial advisors and regulatory constraints can co-exist in the social media universe.
Are you an advisor who worries about getting flagged in an audit for stepping outside the bounds? Take a page from the advice you offer clients who struggle with reaching their financial goals: Have a plan.
Regulators like firms that lay out their plans for using social media compliantly; indeed, regulators insist on it. Attorney Stuart Fross, former senior vice president of compliance and general counsel at Fidelity International who now works with firms globally, puts it this way: “Having a system to manage social media is a defense.”
So, do regulators make social media difficult for financial professionals to use? Many advisors certainly believe so, even if it's their own compliance officers who are raising the bar through restrictive in-house rules. Charles Schwab's vice president of compliance communications Melissa Callison said in an interview for this book that regulators have “tried to make expectations clear, but it's extremely complex because you're dealing with third-party sites, and they aren't always cooperating.”
Consider some of the issues that make it hard for the industry to view regulators as friendly to social media in general, and to the way financial professionals use it in particular:
▪ Old Rules for New Media– Many of the existing rules go back to the 1930s and 1940s, an age where social media was a fit subject for science fiction. The SEC's latest pronouncements for advisors on testimonials and social media were more enlightened than many expected.5 But many industry pros feel they have to manage a modern approach to communication with many old rules.
▪ Regulatory Reputation– Some industry leaders believe regulators are concerned about how they look in the new social media world order as they work their way through investor protection. As a result, “They're unwilling to give anyone a sort of pass for anything that happens on social media,” says Theresa Hamacher, CEO of NICSA, a sponsor of online forums for the global investment
SEC, Guidance on the Testimonial Rule and Social Media, March 2014, www.sec.gov/investment/im-guidance-2014-04.pdf. Accessed May 15, 2014.
