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How Advisors Navigate Social Media While Dodging Bullets

Promise and peril abound in the digital Wild West.

Social media can be chirpy and clever. It also can quickly spiral into a warzone. So how should advisors get the most out of it while sidestepping verbal shrapnel and staying on the right side of the law?  

Registered investment advisors must abide by SEC, FINRA and NASAA (North American Securities Administration Association) regulations. Some merely comply. But others add additional safeguards to further reduce risk. David H. Schwartz, a senior financial advisor based in Captrust Financial Advisors’ Lake Success, NY office, argues that current guidelines aren’t sufficient to ensure compliance and avoid potential pitfalls.

The FINRA Social Media and Digital Communication regulations, which affect broker/dealers, are more detailed than those published by NASAA. FINRA’s regulations prohibit “false, misleading claims, exaggerated statements. and material omissions.” Firms must train their staff on differences between personal and business use via social media, and ensure a way to “surveil” their staff’s interactive social media use.

But Schwartz says that Captrust, which oversees $290 billion in assets under management, considers the FINRA and SEC guidelines too general and has in response established its own guideposts to ensure greater control while avoiding compliance issues. “Facebook is allowable under SEC guidelines,” he says, “but it’s not allowable under Captrust to maintain an account and do business there.  It’s too personal and leads to problems.”

Captrust’s social media directives dictate that an RIA must inform supervisors of any dealings on social media including Facebook, Twitter or LinkedIn and make them aware of any communication and how it was resolved. (This is a far cry from Josh Brown’s rat-a-tat-tat machine gun tweeting.) Those rules follow SEC, FINRA and NASAA directives.  But Schwartz notes that the more “freedom and flexibility, the more likely you’ll have issues.  Everybody may not be as fluent about what they’re putting on social media.  You don’t want a free-for-all.”

Schwartz says Captrust is trying to avoid two major complications on social media:  avoiding regulatory problems, at all costs, and minimizing the possibility of an employee communicating misleading information.  Sharing inaccurate information can quickly damage a firm’s reputation and credibility. Rebuilding that can take far longer, if ever.

With this strict policy is Captrust losing ground to competitors that use social media to market their firms and communicate with potential clients, particularly Millennials? Schwartz acknowledges this dynamic but insists that “for now, we’re better off with this policy.” He adds that  “if things change, maybe Captrust will have to loosen up the reins."

Captrust has reason to be cautious given that it caters to high-net worth individuals. Marketing to the masses would require hiring additional staff to handle requests, and in most cases, they wouldn’t represent Captrust’s traditional clientele, Schwartz says.

Regarding the social media guidelines for NASAA, Andrea Seidt, who is the Ohio Securities Commissioner and chair of NASAA’s Investment Advisor Section, says at NASAA “there aren’t rules specific to social media. It’s another mode of communication, another way to advertise, whether it’s print media, TV or social media.” 

Seidt says that rules for prohibiting misleading and false information are explicitly spelled out and pertain to social media as much as print media. Larger firms develop their own guidelines, she adds, to ensure that they don’t run afoul of regulatory guidelines.

Boston-based Putnam Investments, which oversees $175 billion in assets under management, has a less restrictive approach to social media than Captrust. Mark McKenna, Putnam’s head of global marketing, says there have been no major red flags so far. He notes that most advisors adopted social media early and focused on compliance, namely avoiding making misleading statements and making no admissions of material fact while ensuring they’re making full disclosures on specific topics.

McKenna also noted that while RIAs use Facebook, Instagram and Snapchat, many employ LinkedIn to find new prospects because of the tools it offers through enhanced memberships.  For example, he said an RIA can pinpoint a manager in HR in high-tech who attended their alma mater in specific zip codes.

He also noted that enterprise-wide software has made it easier for RIAs to comply with the regulations for record-keeping, a major focus of social media guidelines.

As a hybrid RIA/broker dealer, Douglas Boneparth, president of New York City-based Bone Fide Wealth, which oversees $80 million in assets under management, follows the SEC, FINRA and NASAA guidelines that apply to social media. “You follow the same rules that apply to not misleading the public, making false representation, soliciting investment advice.  It almost touches on the largest overall theme: do no harm,” he says.

But Boneparth emphasizes that communicating with clients via social media requires an RIA to “think twice before you post something because it’s more immediate. Social media has democratized the news.  You can put out anything you want,” he says. “You have to be more careful.”

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