Tweeting Rules May Leave Brokers With Little to Say to Clients
Social media sites such as LinkedIn and Twitter are redefining the way businesses reach their customers. Securities firms are largely absent from the revolution.
Regulators and company rules at brokerages have slowed the adoption of social media by the financial services industry, said Margaret Paradis, a New York-based partner at law firm Baker & McKenzie, who advises brokers and fund managers. Firms banning employees from using sites such as Facebook, LinkedIn and Twitter are limiting access to cheap and easy-to-use competitive tools, she said.
“Networks and referrals are how this business is done, said Stacey Haefele, president and chief executive officer of New York-based wealth marketing firm HNW Inc. ‘‘By ignoring social media, you risk not being out there where your clients are.’’ About 84 percent of U.S. brokerage firm employees polled by HNW said they don’t use social media because company and industry regulations make it too burdensome, she said.
The U.S. Securities and Exchange Commission, which regulates the securities industry, says all broker stock recommendations must be ‘‘suitable” for individual clients by measuring their risk tolerance, security holdings, income, net worth and investment objectives, according to the agency’s website. Sending a stock pick on Twitter or posting it on Facebook generally breaks this rule, said David Sobel, executive vice president and compliance officer at New York- based Abel/Noser Corp., which helps clients lower trading costs and does allow its employees to use LinkedIn for networking.
Firms such as Bank of America’s Merrill Lynch & Co. and TD Ameritrade Holding Corp. generally restrict all broker-to- investor interaction on social media sites because of concerns they may violate SEC rules and those of the Financial Industry Regulatory Authority, the non-governmental body that oversees almost 5,000 brokerages. Brokers who break the rules may be fined or suspended for communicating in a manner that’s viewed as intentionally or recklessly misleading, Finra said.
Finra requires companies to supervise and store all broker- client exchanges, such as e-mails and now Twitter posts and Facebook updates. Brokerages also are required to approve most postings on websites, Tom Pappas, vice president of advertising regulation at Finra, said in an interview. Finra released a regulatory notice in January with guidelines for firms using social media. “We issued these standards to help firms understand and follow the rules,” Pappas said.
Nearly half of 623 financial advisers in a survey released by HNW Oct. 26 said they haven’t figured out how to mix social media tools into their marketing strategies. HNW surveyed national brokers, registered investment advisers, independent broker-dealers and dually registered advisers.
Vanguard Group, the Valley Forge, Pennsylvania-based investment manager, now permits employees to use Facebook and LinkedIn as long as specific investment recommendations aren’t given. Twelve workers spent three months blogging, posting and tweeting part-time on social media sites to figure out the best way to use each, said Amy Dobra, who heads the company’s social media efforts.
“We didn’t just say we’re going to go on Twitter because everyone’s going out on Twitter,” she said. “We watched.”
Vanguard’s competitors, such as Charles Schwab Corp., TD Ameritrade, and Merrill Lynch use Facebook pages for general information and marketing without providing specific investment advice. Some brokerages use Twitter the same way.
Firms should make their commentary on social networks relate to people, said Jack Dorsey, chairman and co-founder of San Francisco-based Twitter, in an interview. “The more human you make it, the more interest you’ll have,” he said. “It can’t feel like something from the PR department.”
Tony Hsieh, chief executive officer of Amazon.com Inc.’s Zappos.com Inc., which sells footwear online, has gained more than 1.7 million followers by scattering tweets about his company along with daily observations. On Sept. 19 he tweeted, “Studies find top three most stressful moments in people’s lives: death, divorce and properly pronouncing Worcestershire sauce,” and on Oct. 10, he posted, “What’s life like six months after Zappos customers get married at Zappos Las Vegas headquarters?” with a link to a video of the couple.
A study by the Aite Group showed that less than 10 percent of financial services firms have a separate social media budget, according to a Nov. 17 study of 166 executives by the Boston- based market research and advisory firm. Six in 10 financial firms consider themselves to be social media novices or beginners, the study said.
“You talk to the marketers in these organizations and they’re so obsessed with how many Facebook followers and ‘likes’ they have,” Ron Shevlin, a Boston-based senior analyst who wrote the study for Aite Group, said. If there are half a million people looking at a company’s page on Facebook, “how is that any better than fighting for attention with a TV commercial?” he said.
Companies that actively engage potential customers will see better results if they integrate social media into current sites. Creating a sense of community with clients is crucial, Shevlin said.
Brokers eager to exploit social media may turn to firms such as H5 and Socialware to develop the record-keeping technology that will pass muster with regulators.
Socialware generally charges clients $22 per user to archive content from social media sites such as Facebook, Twitter and LinkedIn and moderate discussions to make sure they comply with broker standards, said Chad Bockius, chief executive officer of the Austin, Texas-based company, in an interview. The fee varies depending on the size of the firm, he said.
Technology may not be as cost-effective for small firms as designating an employee to monitor the sites, James Wolf, senior technical director of information governance solutions at San Francisco-based H5, said in an interview.
“For a large firm where there are thousands of registered representatives, a more automated approach may be better,” he said, referring to record-keeping technology made by companies such as H5.
“The whole idea of ‘just say no’ is as effective today as it was in the anti-drug campaigns in the 1980s,” said Chris Surdak, senior director, information governance solutions of H5, referring to a slogan made popular by former first lady Nancy Reagan. “You’re better off embracing it than fighting it,” he said.
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