January 12, 2012 / 4:41 PM / 7 years ago

COMPLY: Flattery on Facebook can mean headaches for advisers

(Reuters) - Financial advisers don’t have the freedom to embrace social media with the same unbridled enthusiasm as the rest of the world.

Even the most innocent comments posted to their social media profiles by friends and family could lead to trouble with regulators. Kind words from third parties may be construed as testimonials, which are heavily restricted for brokerages and not even permitted for registered investment advisers.

The U.S. Securities and Exchange Commission, in recent social networking guidance, cautioned investment advisers about third-party posts. Firms that allow those postings on LinkedIn and Facebook may need safeguards to avoid violating securities laws, SEC staff wrote.

Social networking practices are shifting in the securities industry, after many firms initially banned advisers from using the sites. But as more firms slowly come around to using the sites, their concerns are increasingly focusing on how to control comments and links posted by third parties.

Answers to those questions from regulators are still evolving. The SEC’s new guidance follows earlier suggestions for the brokerage industry from the Financial Industry Regulatory Authority about everything from archiving messages to monitoring for compliance. But even those efforts don’t fully resolve some industry-wide worries, such as whether a simple “Like” from a client on an adviser’s Facebook page could be a testimonial.

Leaving some ambiguity in industry rules helps regulators apply them to varying situations, according to Cathy Vasilev, vice president of Red Oak Compliance Solutions LLC in Fredericksburg, Texas. Securities firms, in the meantime, are trying to avoid problems.

Raymond James Financial Inc, which recently allowed its advisers to use social networking sites, adopted a conservative, but easy-to-implement approach for certain third-party posts: it disabled the “Like” feature on its advisers’ Facebook pages to prevent its use by clients. Advisers’ LinkedIn profiles don’t display recommendations, according to Greg Kokemuller, Raymond James advertising supervisor.

Keeping tabs on third-party Facebook comments can be a little trickier. A growing number of companies offer software that helps firms monitor and archive communications through social networking sites. Some programs can automatically remove content that uses certain terms. But advisers may still ultimately have to decide whether certain comments stay or go.

Most third-party Facebook posts haven’t concerned David Edwards, president of Heron Financial Group, LLC in New York. He uses monitoring software to help keep track of social networking profiles for his firm. Users may “Like” certain comments he posts, but no one has yet posted glowing remarks that could be construed as a testimonial, he said. He’d delete those type of comments and send the client a thank-you note that politely explains the regulation, he said.

But advisers are still responsible for archiving posts they remove, according to Sarah Carter, vice president of marketing at Actiance Inc, a technology company that helps firms use social media in a compliant manner.

Drawing a line between personal and professional profiles also can help insulate advisers from regulatory problems. On Facebook, “my personal page is locked down,” said Nicholas Olesen, an adviser with The Philadelphia Group in King of Prussia, Pennsylvania. He changed his visibility settings so that his personal page doesn’t appear in Facebook search results, giving him more control over personal interaction.

Olesen also blogs about money management issues on a site where readers can comment. He publishes the blog through a Website service that emails the comments to him in advance for his approval. Olesen, who is also affiliated with LPL Financial, a unit of LPL Investment Holdings Inc submits other information to FINRA for review through the company’s compliance department.

Keeping track on what people are saying online doesn’t take too much time, he said. Olesen, who also has professional Facebook and Twitter pages, spends about 15 minutes a week looking third-party posts, he said. He receives email alerts from social networking sites when he’s mentioned and set up an alert through Google that tracks his name.

“With so many things being able to be automated..., I don’t have to spend much time trying to solve issues,” he said.

Reporting by Suzanne Barlyn; Editing by Walden Siew

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