Firms are getting 'social'

Jul 14, 2013 @ 8:31 am

By Mark Schoeff Jr.

It appears that investment advisory firms increasingly are targeting their compliance efforts on the use of social media — an indication that efforts to ban the use of such programs have failed.

A study released last Thursday shows that 83% of firms have adopted written social-media policies, up from 80% last year.

The most recent figure is a dramatic increase from what the survey found just a few years back. In 2010, just 43% of respondents had rolled out written policies for social-media usage.

The growing influence of social networking on the advice industry also showed up in other results.

The number of firms prohibiting the use of social media such as Facebook, Twitter and LinkedIn has declined to 49% this year. That is down from 54% last year.

Over the past year, social-media testing has increased for 43% of the firms surveyed. Testing means checking to see whether financial advisers are complying with social-media procedures and policies.

For instance, the most common approaches to social-media testing, according to the report, are ensuring that employee LinkedIn accounts are linked to the firm's and chief compliance officer's accounts; using Google Alerts for firm, fund and employees' names to detect unauthorized social-media use; using software or third-party vendors to monitor posts; and requiring employees to “friend” or connect with the CCO.

The results are based on an online poll of 462 compliance professionals working for investment advisers registered with the Securities and Exchange Commission. The Investment Management Compliance Testing Survey was conducted by the Investment Adviser Association, the ACA Compliance Group and Old Mutual Asset Management.


Also noteworthy from the survey: Respondents have upped the amount of compliance testing for advertising and marketing, social media, personal trading, disaster recovery and political contributions over the past year.

In addition, they cited advertising and marketing, valuation and custody as “hot compliance topics.” Each of the three has been the subject of SEC actions or risk alerts over the past few months.

Fully one-third of the firms surveyed spent more than $500,000 on compliance last year. They are going high tech, as well, with 60% using electronic compliance systems.

The survey suggests that firms are giving up the battle to keep social media out of their shops.

Instead, they are loosening bans and allowing more use with appropriate policies and procedures in place, according to Laura Grossman, the IAA's assistant general counsel.

“They're shifting to more of an acceptance that there's a need to integrate social media into their business models,” she said.

Another reason that advisers have turned their attention to social media is because the SEC has, too.

“There's an awareness in the investment adviser community that the SEC is focusing more on this area during exams,” Ms. Grossman said. Twitter: @markschoeff


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