Financial services firms slow to use social media to reach customers

By Danielle Kucera
Saturday, December 4, 2010; 5:17 PM

NEW YORK - Social-media sites such as LinkedIn and Twitter are redefining the way businesses reach their customers, but 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 of New York-based wealth marketing firm HNW. "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, Haefele said.

The 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 Web site. Tweeting a stock pick or posting it on Facebook generally breaks this rule, said David Sobel, executive vice president and compliance officer at New York-based Abel/Noser, 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 and TD Ameritrade usually forbid broker-to- investor interaction on social-media sites because of concerns they may violate SEC rules and those of the Financial Industry Regulatory Authority (FINRA), the nongovernmental body that oversees almost 5,000 brokerages.

Brokers who break the rules may be fined or suspended for communicating in a way that's seen as 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 Web sites, 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 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, Penn.-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.

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