Technology Update

A warning before you Twitter

Finra's rules about content apply, so adviser tweeting is a compliance nightmare

Jun 21, 2009 @ 12:01 am

Like everyone else, it seems, many advisers and brokers are atwitter about Twitter, the free social networking utility. As it explains on its website, Twitter asks one question, “What are you doing?” Participants answer that question in “tweets,” which must be less than 140 characters in length and can be sent via mobile texting, instant messaging or the web. While some financial professionals have become “tweeters” and others are eager to share their snippet-like messages on Twitter, registered representatives should probably not go tweeting before they consult with their compliance department. According to the Financial Industry Regulatory Authority Inc. of New York and Washington, tweeting falls under the general rules for broker-dealer communication, which require that all content from registered personnel be fair, balanced and not misleading. But the regulator has no specific rules about Twitter. So how can compliance officers pre-approve tweets to make sure they meet the rules when the nature of tweeting is so spontaneous? That, essentially, is the problem. Finra doesn't believe it's appropriate to make special rules for each new communication tool that becomes available.
“We are very interested in accommodating new technology, but the challenge is to have rules that are both specific enough to address current issues, but broad enough to accommodate evolving technologies and future developments,” said Thomas Pappas, Finra's vice president and director of the advertising regulation department in Rockville, Md. “If we were to write a rule that addresses something too specific, say Western Union telegrams, it wouldn't have taken long before that rule was deemed obsolete,” he said. Attorneys working with broker-dealers are wary of the technology. “As part of their business, broker-dealers and their representatives cannot use Twitter because there is no technique for retaining it and supervising it,” said Eric M. Rosenberg, an attorney and president of Litigation Proofing LLC, a consulting firm in Mamaroneck, N.Y. “Because other types of businesses are using the medium to market and advertise themselves, investment advisers feel pressure to start using the technology,” said Jon Neiditz, an attorney with Nelson Mullins Riley & Scarborough LLP in Atlanta. But until Twitter offers the kind of retention and supervision that are now possible with e-mail and instant messaging, he believes that advisers will be taking their chances when using the service. “I don't know if any of us can anticipate all the risks, or the ways that the SEC or Finra will respond to the kinds of things that will appear on Twitter,” Mr. Neiditz said. “If you can't erase tweets, then Twitter is significantly more risky than blogs or web pages,” he said, referring to how tweets cannot be recalled, edited or taken down. Some compliance experts doubt that Twitter will ever evolve in a way that makes sense for advisers. “It is almost impossible to come up with a way to supervise a technology like Twitter; the way it's built, a pre-review of each tweet is impractical,” said Harry Chaffee, director of financial reporting and compliance support services at Renaissance Regulatory Services Inc. in Boca Raton, Fla. “Adding a supervisory element almost defeats the purpose [of the technology] anyway,” he added, referring to Twitter's fast pace. When thinking of precedents when it comes to regulating Twitter, about the closest things technologically are blogs, bulletin boards and chat rooms, according to attorney Paul A. Lieberman, managing counsel at Hamburger Law Firm LLC in Englewood, N.J. Compliance officers view blogs and bulletin boards as advertising, he said, noting that back-and-forth tweets could be interpreted as a chat-room conversation, and those are considered public appearances requiring pre-approval. “At the very least, with all of these social networking technologies, it is better to read your firm's compliance and procedure manuals before you hit send,” said Mr. Lieberman, who also serves as associate director of litigation at MarketCounsel LLC, an affiliated compliance consultancy, where he counsels financial advisers on regulatory and business issues. For reps who don't use Twitter for customer interaction, the service may have other charms.

“The part I like most about it is making contact with other professionals, people I wouldn't have found through any other outlets,” said Jeff Rose, a certified financial planner with the Alliance Investment Planning Group in Carbondale, Ill., which manages $90 million in assets.

He concedes that he hasn't yet received approval for his Twitter usage from compliance officials at his broker-dealer, Boston-based LPL Financial, but he isn't especially worried. Mr. Ross said he uses Twitter more to follow postings about financial publications than for anything that could be construed as marketing or advertising.

“Having someone else filter and post only the most interesting tidbits is easier than my having to scour the Wall Street Journal or Kiplinger's,” he said. “But there's going to be some idiot out there who will abuse it egregiously and they'll come down on all of us.”

Email Davis D. Janowski at


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