Capturing conversations

When it comes to tweeting and posting, everyone’s doing it — and investment advisers can, too, as long as they’re able to show regulators what they’ve been up to online.

Although the social-media world is freewheeling, investment advisory and brokerage firms should have their internal policies buttoned down before they venture out into Twitter, Facebook, LinkedIn and other platforms. They’ll never know when the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. may want to take a look.

“The focus this year is really going to laser in on written supervisory procedures,” said Blane Warrene, senior vice president of customer communication at RegEd Inc., a compliance provider. “Can you actually execute your compliance programs for social media?”

The controls don’t have to be elaborate, according to Jennifer Openshaw, president of Finect Inc., a compliant online network for advisers.

“What matters most to [regulators] is ensuring that advisers have procedures to handle the use of social media in the business,” she said. “Often the simplest policy can be the best. The key is having a system.”

CAPTURE AND KEEP

Firms must be able to capture everything its employees put out into cyberspace, and keep it accessible for at least three years for brokers and at least five years for advisers.

“Although Internet content does not disappear [easily], when it does, it can have far-reaching and long-lasting effects on firms and representatives who use it,” Brian Rubin and Caroline Crenshaw, partners at Sutherland Asbill & Brennan LLP, wrote in a June newsletter. “Without established procedures to maintain, review and supervise communications transmitted via e-mail, instant messages, blogs, posts and other forums that may yet be invented, companies and individuals can be at risk of violating regulatory obligations.”

The recent Investment Management Compliance Testing Survey, conducted by the Investment Adviser Association, ACA Compliance Group and Old Mutual Asset Management showed that 83% of advisory firms have adopted written social-media policies, up from 43% in 2010.

A recent InvestmentNews social-media survey broke out the numbers further, and found that 94.7% of responding wirehouse/regional brokerages have a social-media policy, versus 86.8% of independent broker-dealers and 66.7% of registered investment advisers. Last year, those numbers were 83%, 81.6% and 60.9%, respectively.

Finra announced in June that it will conduct social-media spot checks on the approximately 4,700 brokerage firms it oversees. Among other things, the regulator will ask for the URL of each social-media site used by the firm, the identities of all employees who post there, a copy of “written supervisory procedures” and an explanation of how the firm monitors compliance.

In its most recent social-media guidance in April, the SEC said that companies can use social-media sites such as Facebook and Twitter to release financial and other corporate information as long as they make clear to investors that that’s where to find it.

The policy emanated from a case involving the chief executive of the entertainment site Netflix, who announced a milestone in the company’s monthly online viewing on his personal Facebook page.

The two approaches illustrate the different emphasis of each regulator.

The SEC “is looking at the dangers [social media] presents at the corporate level,” said Amy Lynch, president of Frontline Compliance LLC. “Finra’s primary jurisdiction is over the individual.”

By now, advisers have the hang of archiving and reproducing e-mail for regulators. Preserving an electronic trail of fluid social-media conversations is a different matter.

“The biggest challenge for firms is that they can’t keep track of all the data flying around,” Mr. Warrene said.

Individual tweets and posts can be butterflies in a storm, but firms had better be able to net them, show them to regulators and demonstrate how they can respond if one of them violates the firm’s social-media policy.

“A big risk is that advisers are not capturing all of their messages,” said Bill Winterberg, founder and chief executive of FPPad, an adviser technology consulting firm. “If you’re failing to capture messages, then supervising is a moot point.”

Many advisers outsource their social-media compliance to firms that handle archiving for them, such as RegEd, Erado, Archives Social and Actiance Inc.

A PREMIUM ON BREVITY

No matter who is keeping track, using social media can be complicated for advisers and brokers. For one thing, their business can be complex, while communicating via social media — whether it’s in the 140-character limit of Twitter or in the small status update boxes on Facebook — puts a premium on brevity.

“Social media, because of its ephemeral nature and its tendency to be informal, also tends to be at odds with the intentions of regulators,” said Stuart Fross, a partner at Foley & Lardner LLP.

Despite the Wild West feel of social media, advisers should not shoot from the hip when communicating in those forums. For instance, they need to be careful that individual tweets don’t add up to a “buy” or “sell” recommendation.

“The biggest thing that can get them into trouble is posting information in such a way that it looks as if it’s investment advice,” Ms. Lynch said.

According to the InvestmentNews survey, the No. 1 reason advisers don’t use social media professionally is concern about compliance and regulatory issues, at 52%, up from 48% last year.

Regulatory dangers notwithstanding, social-media use is increasing among advisers. The Investment Management Compliance Testing Survey found that while 49% of firms still prohibit the use of personal-social-networking websites for business purposes, this has dropped 5 percentage points from 54% in 2012.

And many advisers remain undaunted.

Rob Schulz, president of First Texas Financial Services Corp., uses LinkedIn for business connections, Twitter to promote ideas and Facebook to keep track of developments in clients’ lives.

IT’S ALL ABOUT SHARING

“I’m not trying to sell anybody anything,” Mr. Schulz said. “I use it as a way to share information and deepen personal relationships.”

As social media evolves, it will be the regulators who will have to keep up.

“There still remains a lot of room for interpretation, and unfortunately, the law will never get ahead of innovation and how people use social media,” Mr. Winterberg said.