Brokerage firms chafe at social networking limits

NEW YORK (Reuters) - Financial advisers and their bosses are keen to jump on the social media bandwagon, but regulators are making it tough for them to climb aboard.

Guidelines that the Financial Industry Regulatory Authority released 15 months ago about reviewing and archiving communications over such popular sites as Facebook, LinkedIn and Twitter are so restrictive that brokerage firms have been afraid to open the social-networking floodgates.

That's proved particularly frustrating to retail brokerage executives who have been encouraging their largely middle-aged and older advisers' to prove their worth to the children of wealthy clients and younger prospects by communicating through the popular new media.

"Social networking is an imperative," Richard Franchella, head of RBC Wealth Management's New York City area branches said at the Securities Industry and Financial Markets Association's private client conference in New York last week. His own firm, he added, would likely slash a big "X" over any message he tried to email from one of the sites.

In a January 2010 notice, FINRA advised brokerage firms to treat information on social media sites as "sales literature," meaning tweets, posts and other data must be captured and retained for at least three years.

"Static" information, such as profiles and blog entries, have to be pre-approved before being posted online, according to the self-regulatory group.

SPONTANEITY

The freewheeling nature of social networks that make them so appealing -- their encouragement of linking to outside sites, their potential to spread messages and images virally -- is of particular concern to compliance officials. The Investment Advisers Act of 1940 requires SEC-registered advisers to retain copies of all advertisements circulated directly or indirectly to ten or more people, and retain any documents necessary to substantiate performance claims in ads.

"There is a safe way to do it, but it removes the interactive back and forth," said Rebecca Pomering, chief executive at Seattle-based Moss Adams Wealth Advisors, an SEC-registered investment advisory firm. The rules, in essence, let people "tweet at you but you can't tweet back," she said.

Registered representatives at broker-dealers have to be wary of the rigidly limited ability to use testimonials from clients, among other things.

Not surprisingly, then, broker-dealers and independent advisory firms limit employees' use of social networking's most salient features.

"Social media issues go above and beyond the rules as they are currently written," said Jason Thackeray, associate compliance director at Raymond James Financial Services, which for nearly a year has allowed advisers to open Facebook, Linked In and Twitter accounts but not to use their interactive features. "We would like to see (FINRA) address social media from a more contemporary standpoint."

FINRA RESPONSE

FINRA recently reconvened its social media taskforce, but advisers should not expect radical changes.

"We're not looking at it as an effort to change the guidance," said Joseph Price, senior vice president of advertising regulation at the industry self-regulatory organization.

The group is trying to clarify some issues "around the edges" that firms have raised, he said, such as when changes to static content give rise to a need for another approval.

That's cold comfort to advisers and their bosses who say they -- like social networks -- were born to build relationships. There is little point in giving advisers limited access to the border-expanding sites, said Joseph Corriero, director of digital marketing at Bank of America.

Executives also fear pushing the networking envelope, or even having advisers use innovative iPad apps, when regulators are developing a slew of consumer-protection rules and when FINRA has made use of social media an exam priority for 2011.

"I'm not sure anyone wants to play those cards right now," Steve Gresham, senior vice president of Fidelity Investments' private client group for personal investing said at last week's Sifma conference.

What is being tried is very basic, executives said.

Bank of America Corp's Merrill Lynch, Wells Fargo & Co.'s Wells Fargo Advisors and UBS AG's UBS Wealth Management Americas permits advisers to maintain LinkedIn profiles displaying contact details and biographical information but not to link to other profiles.

Morgan Stanley Smith Barney has an ongoing pilot in which just 100 advisers are allowed to use LinkedIn.

Some smaller firms are a bit more aggressive. Commonwealth Financial Services, which provides regulatory and brokerage services to independent registered representatives, lets them post canned messages on Facebook that the firm creates weekly, said Todd Estabrook, Commonwealth's chief marketing officer.

It's also working on an archiving pilot that could capture advisers' tweets and blogs, a project it hopes to launch this year. "These vehicles can help advisers meet new people and maintain existing relationships," Estabrook said.

(Reporting by Helen Kearney, editing by Jed Horowitz)