More On Legal & Compliancefrom The Advisor's Professional Library
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
- Scope of the Fiduciary Duty Owed by Investment Advisors A fiduciary obligation goes beyond the suitability standard typically owed by registered representatives of broker-dealer firms to clients. The relationship is built on the premise that the advisor will always do the right thing for the person or entity receiving advice.
Chad Bockius (left), the CEO of Austin-based Socialware, has been following the use of social media in the financial-services industry for several years. In mid-2008, he helped start Socialware, which provides firms in the field with software and services to support their business growth using social media.
The firm made news in late May, when a client, Morgan Stanley Smith Barney, said it would be allowing its advisors to use Twitter and LinkedIn. And the broker-dealer American Portfolio Services said June 1 that it would soon begin using Socialware to expand its advisors’ use of social media.
AdvisorOne spoke with Bockius about what Morgan Stanley’s announcement and regulatory developments affecting social-media mean for the industry.
How are advisors using social media today?
Bockius: LinkedIn is the most widely used site, and about 60 to 70% of advisors use Facebook and Twitter. We have found that 40% of advisors are violating policy to drive their businesses. Thus, firms can take their time with social media, but advisors are figuring this out on their own.
Prohibition can be policy -- but it’s not being adhered to. This also means that FINRA or the SEC could go towards fining firms if their policies are not being enforced.
Social networks will be as valuable over the next three years as e-mail has become. Advisors will use it, or they may switch firms to do so.
What’s your assessment of where the broader financial-services industry is with respect to the use of social media?
There’s been a lot of news in the past few weeks, and its shaking up the industry -- as Morgan Stanley is the first wirehouse to [announce a policy] to do this. They will be accessing social media and using it to drive business forward, which is really what everyone wants to do.
Why is the news about Morgan Stanley and its social-media policy important to your firm and to the industry?
What makes this an interesting development for Socialware is that it’s an example of deploying this type of capability to one of the largest broker-dealers in the industry. The wirehouses have tens of thousands of users. This means that we’re taking social media and making it scalable.
It must flow into core compliance functions and be integrated with existing archiving and supervision teams to allow them to do what is required, such as archiving e-mail and instant messages.
How has your firm responded to rules and regulation facing advisors, broker-dealers and their use of social media, such as the 2011 SEC Sweeps letter that said social-media communications have to be archived, like e-mail?
We saw an opportunity with the regulatory constraints outlined in FINRA’s 10-06 regulatory notice of January 2010. This was a stake in the ground that provided clarity but no new policy.
As businesses have wanted access to social networks, FINRA responded. Thus, all content that is created on sites like Facebook, LinkedIn and Twitter have to be archived. And the industry needs technology, mainly software, to address the features, functions and functionality of these sites.
There’s also the issue that the industry has to comply with restrictions. It cannot put up recommendations on LinkedIn, for instance, since this is considered to be testimonials like advertising and is subject to SEC regulation.
In addition, firms in the financial-services industry need real-time moderation. And we can provide services like quarantining for messages and providing guarantees about the content by taking a closer look at this as an organization.
Where do you think industry regulation of social media is headed?
The SEC’s 2011 Sweeps letter mirrors FINRA’s language and approach to social media, almost identically. FINRA is a model for other agencies, in the United States, Canada and the United Kingdom. FINRA is in the lead on this matter and has spearheaded the industry’s approach to social media.
We expect FINRA to come out later this year with additional guidance -- not new policy, but it should be clarifying key points about social media.
Social media is complicated. What is critical for firms like us is to continue to innovate to facilitate firms’ use of it, so advisors and others can actually build books of business on these platforms. They can also publish thought-leadership pieces and provoke conversation and engagement with it.
We want to bring more advisors into the social-networking context, and we have the assets to put into play in this channel, so they can ultimately build new relations and strengthen older ones.