Kirsten Wolberg: Lessons from the Cloud

Former Salesforce.com CIO and current Socialware advisor Kirsten Wolberg kicked off the event with an interactive keynote session. During her presentation, she talked about the many years of experience in financial services IT that preceded her stint with Salesforce.com, where she was immersed like never before in the breathtaking changes that cloud, social, and mobile technologies bring to the enterprise.

Wolberg offered some historical perspective on the social and mobile revolutions by reviewing the generations of change that have affected enterprise IT since the 1960s. Mainframes eventually gave way to client-server architectures, which in turn evolved to accommodate the Web, the cloud, and now social and mobile computing.

She also shared practical advice on navigating this accelerating pace of change. Three areas, she said, deserve particular attention:

• Involving the right stakeholders. Social business has to be a broad initiative if it is going to succeed for an enterprise. Even though social business practices ideally will be driven from the business side, it’s vital that IT leaders get involved early and ensure engagement from security, compliance, legal, and other stakeholders.
• Managing pilot-to-rollout processes. Cloud-based applications allow for much more rapid pilot processes to find problems and enhance functionality. Wolberg particularly endorses rolling out one feature at at time on a regular cadence to limit risks and gather user feedback at scale.
• Establishing expectations around continuous change. The days of occasional enterprise software updates are over. Users should be encouraged to embrace the ongoing improvements possible through the SaaS model, especially in the context of the continuously evolving social networks.

Future posts here will go into more depth about each of these ideas.

Panel Discussion: Social Business IT Challenges

After Wolberg’s presentation, a panel of experts discussed the current IT landscape for social business, along with the major shifts they see happening.

• Stessa Cohen of Gartner talked about the wide spectrum of approaches to social media at the enterprise, from “lurkers” who simply monitor what is being said about their companies, to those using social technologies actively to service customers and drive product development. She made a particular point that the ease with which social media can be implemented by marketing departments or individuals forces a shift in IT’s thinking about how to approach this set of technologies.
• James Burnette of LinkedIn discussed how his company continues to build out its platform to offer relevant business insights to professionals across corporate hierarchies. He also talked about how the most forward-thinking firms he sees have key executives pushing for more social media involvement across different areas, including marketing, recruiting, and IT.
• Grant Asplund of Blue Coat Systems talked about the speed at which malicious actors and malware move in this new IT environment. While giving data about the huge numbers of threats to contend with, he compared the competition between IT departments and the bad guys to the “Spy vs. Spy” comics from Mad magazine.
• Coleem Chestnut, senior integration engineer at Socialware, drew from his own experience in managing security and connectivity at a major financial services firm to talk about the evolution of change management processes for enterprise data centers and network perimeters.

A Socialware Perspective on Implementing Social Media

The event concluded with a presentation from Socialware VP of Engineering Chad Walters. He shared data on the risks created by social media use and offered his insights on how to take action quickly to protect your company while enabling it to pursue the business value created by social media. Walters’ talk covered these five areas:

1. Enabling compliance. The key challenge here is that the social networks were designed with end users, rather than enterprises, in mind. They lack the granular controls typically found in enterprise software, so data flows freely. This forces the CIO to ask “How can we manage data and access?”
2. Security. All of the IT professionals in the room were acutely aware of the security challenges posed by social media, and Walters gave them some key points to consider as they address those concerns at a practical level.
3. The pace of change. This had been a theme throughout the day, and Walters drove this point home by noting that Socialware puts out a new software release every three weeks . . . yet still issues an average of five other changes per three-week cycle to stay abreast of the social networks’ evolution.
4. Privacy. This is an area that requires good stewardship from IT departments, since there are complex interlocks between technical issues, regulatory requirements, and users’ own feelings about adequate privacy provisions.
5. Personal mobile devices. Social media is tightly linked with increased use of personal mobile devices, which requires that enterprises grapple with both of these shifts. Walters recommends building your own plan to deal with each of them one at a time — simply to control the complexity — and to make sure that your social media technology partner also has a strong plan in place for each.

In future posts, Walters will cover these topics in greater detail.

We would like to thank all of the participants in the IT Forum, which has already sparked many follow-up conversations about the challenges and opportunities that social media creates for financial services IT departments. We hope you’ll join the dialogue as well by leaving your questions or remarks in the comments below.

LinkedIn and Socialware are working together to ensure that financial professionals have the knowledge and tools they need to get the most out of LinkedIn as an effective business platform. Now we’ve partnered with Ajax Social Media, a firm that specializes in improving LinkedIn profiles, to bring you a series of four how-to webinars to help you get the most out of LinkedIn.

Maximizing LinkedIn Use as a Financial Professional

LinkedIn is the world’s largest professional social network and a natural fit for relationship-driven industries such as financial services. But many people just don’t know where to start. In these four webinars, which will air February 7-10, 2012, experts from LinkedIn, Ajax, and Socialware will share best practices and step-by-step training for building valuable relationships and realizing the full benefit of the LinkedIn community.

• Step 1 — How to Optimize Your Profile (February 7th) — This discussion will cover the necessary ingredients for presenting yourself and your unique value proposition effectively in your profile.
• Step 2 — How to Build Connections (February 8th) — This webinar will focus on how to build quality connections that correspond to your target audience and what tools are available within LinkedIn to find them.
• Step 3 — How to Listen and Engage (February 9th) — In this discussion, we will demonstrate how to listen to what your connections are saying and how to identify money-in-motion events such as job changes.
• Step 4 — How to Post and Share Your Voice (February 10th) — This session will focus on how to share content and post comments that demonstrate not only your professional core competencies but also your own personality.

Each of these highly practical sessions will address compliance considerations and real-life user examples. Most importantly, they will give you action items you can pursue immediately to make LinkedIn an important part of your professional success.

We’ll air one webinar each day at 11 a.m. Central time. Please register to attend all four webinars as they are separate events.

Click here to register for all four webinars.

(This is a guest post from Stephen Selby, Director of Regulatory Services at LIMRA.)

As social media users in financial services have discovered over the past couple of years, it’s tough to build a business in a swamp. It makes me think of the King of Swamp Castle from Monty Python and the Holy Grail.

Listen, lad. I’ve built this kingdom up from nothing. When I started here, all there was was swamp. All the kings said I was daft to build a castle in a swamp, but I built it all the same, just to show ‘em. It sank into the swamp. So, I built a second one. That sank into the swamp. So I built a third one. That burned down, fell over, then sank into the swamp. But the fourth one stayed up. An’ that’s what your gonna get, lad—the strongest castle in these islands.

Social media regulation has been a little like Swamp Castle. FINRA released Regulatory Notice 10-06, and built a foundational concept for all of us to follow—all the old rules apply. But the financial services industry as a whole did not believe that foundation was solid enough. We let the first castle sink into the swamp.

Then FINRA released Regulatory Notice 11-39. The financial services industry again said that foundation was not strong enough, so we again let social media fall into the swamp. Foreign regulators like the FSA in Great Britain and the IIROC in Canada published social media guidance in their own countries. The National Association of Insurance Commissioners issued its own white paper on social media. The messages from the FSA, IIROC, and NAIC all tracked well with FINRA’s core message—all the old rules apply. But the financial services industry was not happy with that foundation yet and, even with all of the positives, watched social media again fall into the swamp.

January 2012: The Fourth Castle of Social Media Regulation

Now we have both the SEC and the Commonwealth of Massachusetts issuing guidance for Registered Investment Advisors. To paraphrase the King of Swamp Castle—I am here to tell you what you’ve gotten—the strongest castle in these islands! We have seen securities regulators, insurance regulators, and now RIA regulators all say the same things: Yes, social media is an exciting new form of communication. Yes, we will apply existing rules to this new technology. It should be clear that we are no longer standing in a swamp, but on the strong foundation of a consistent message.

Let’s see how that consistent message applies to RIAs in the Commonwealth of Massachusetts. I will present these points in a different order than communicated by the Massachusetts Securities Division their memo of January 18, 2012. This order should help you structure your approach to social media for RIAs:

• Social Media is subject to supervision. Have a plan. Document it. Test the plan at least annually.
• Training. No policy or procedure is very good unless people know what it is. Therefore training is a really good idea.
• The firm is responsible for all business content. It’s social media time. Do you know what your investment advisor representatives (IARs) are saying?
• Social media is subject to record-keeping requirements. You will need a method of capturing and retaining social media content in a manner consistent with SEC retention rules. (For more, see 950 CMR 12.205(7)(a) and 17 CFR 275.204-2.)
• Frequent supervision is better. Massachusetts states on page 6 of their document “A review done daily would be considered a reasonable supervision of the adviser’s social media site.” Less frequent review can be acceptable—if you have low traffic volumes.
• Social media is usually advertising under RIA rules. Go back to the basics and apply current advertising content and supervision standards for RIAs to social media. Performance reporting via social media is subject to the same content and time standards as any other kind of media. Cherry picking past performance is not permitted. Recommendations are not permitted.
• Adoption and Entanglement applied across regulators. RIAs are responsible for content which they post, Tweet, re-Tweet, or like, or to which they link. RIAs are also responsible for content which is posted on behalf of their representatives by business partners or anyone else who has an interest in the success of the IAR. Selective removal of some content results in the “adoption” of the remaining content.
• “Liking” can be Problematic. To completely understand what Massachusetts is saying about the “Like” button, I encourage you to read SEC Regulation FD and the recent SEC risk alert. The key take-away is that your firm is responsible for any content which is “Liked” by the firm or an IAR. Make sure it’s good content.
• Read the SEC guidance. Massachusetts makes reference to recent SEC guidance on social media usage.

More Best Practices for Social Media Compliance

The Massachusetts document “The Use of Social Media by Investment Advisers” is not intended to tell the whole story. Here are a few ideas you need to consider beyond the recent guidance provided by the Commonwealth.

• Put clear license and registration disclosures in social media profiles. This will help insulate the firm against the appearance of soliciting where the firm is not registered.
• Update the firm’s Code of Ethics. Not all states require a code of ethics, but communicating a standard and then training your people to that standard is always a good idea.
• Face-to-face supervision is a best practice. Take time to review the computers and mobile devices of IARs when visiting satellite offices.
• Understand what is being said about you by solicitors and other business partners. You may need to review agreements to specifically address the use of social media.
• Get help, but take responsibility. Social media use and supervision is ultimately up to you, but Socialware and LIMRA can help get you going.

In closing, think of the King of Swamp castle. “All the other kings” may say you are daft for using social media when there are so many questions, from ROI to compliance. Prove them wrong. Now that regulators for the securities, insurance, and investment advisory business have spoken, you have a firm compliance foundation on which to build your social media practice.

When so many regulators are saying the same thing—maybe you really do have the opportunity to build the strongest castle in these islands.

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Instead, Marketing should take up the challenge to perform true social networking by using social platforms to build direct connections with customers and prospects. To achieve this, marketers must answer key questions about our goals for social business, including:

• What messages does your firm want to deliver via social media?
• Will your use of social networking go beyond standard business communication?
• How will you drive real engagement—conversation—rather than simply publishing more content?

Marketing User Group Asks: “Social Content? Or Social Conversation?”

At Socialware’s latest Marketing User Group meeting, several members talked about the different types of content they have tried using to foster conversations on social networks. One member said that her firm had tried (with limited success) to start conversations around regulatory issues and accounting issues. Another member recommended putting oneself in the consumer’s shoes: “What do I want to hear from a company? Do I want them to sell me something?” In many cases, consumers probably do not want “brochure” content that aims to sell the firm’s products.

One attendee made the good point that content will differ based on the advisor and the type of clients served. Advisors ought to know what their clients want to hear, and prospects choose advisors based on styles of communication they like. This helps explain, for example, why some advisors constantly ask for more research to share, while others don’t want any. The goal of this particular attendee’s firm is to provide as much content as possible so that advisors can pick and choose what they need.

Should Marketers Start Conversations around Non-Financial Content?

As a marketer, do you believe it’s your responsibility to create content that is not financially related? For example, would you send out a message commemorating MLK Day?

In general, our User Group members agree that there should be a mix of messages, including topics outside of finance. One attendee said that his firm actively pursues other topics, for instance with content about families, living healthier, or keeping kids safe on Halloween. They find that this mix of non-financial messages is good for both retention and lead generation.

One attendee said that his company is focused not on pushing out just financial information, but on brainstorming articles and publishing content—financial or otherwise—each day that leads to conversation with prospects and clients.

Running the “Marathon” of Social Conversation

“You are embarking on a marathon.” That was the reminder offered by my colleague Carolyn Pawelek, who facilitated the User Group meeting. From everything we’ve seen, many advisors don’t know what to say via social media—and so they don’t say anything. Carolyn’s marathon analogy is meant to drive home the point that Marketing departments should provide tools for advisors to continually broaden their networks over the long haul.

Excitement and activity around social media creates intangible benefits like a greater sense of trust and connection between clients and advisors. These in turn lead to tangible benefits, from greater share-of-wallet for an individual advisor to higher revenue for the firm. But these benefits emerge most strongly when marketers and advisors invest the time and energy to build meaningful social connections.

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“Social is a shared service that’s used across the enterprise. As such, the CIO is responsible for being the integrator of those solutions.”

Wolberg also talked about how often CIOs, CTOs, CISOs, and other IT leaders are “at the nexus of saying ‘No’,” and how refreshing it can be to be able to say “Yes” to new initiatives or tools that enable better business outcomes—especially in cutting-edge areas like social.

IT as a Leader, Not a Follower, in Social Business

For more perspective on this, I talked with Ken Burbary, a technologist who serves as Vice President and Group Director for Strategy and Analysis at the global agency Digitas. His work puts him in touch with business leaders across different industries who are grappling with the implementation—and the implications—of social business practices.

“IT has a key role in all of these amazing and disruptive innovations. The days of command and control IT are waning, if not over, in most companies. So how can the CIO stay relevant to the business? By clearly articulating how to help internal clients be successful in achieving their goals by leveraging social technologies.”

Burbary is quick to acknowledge that this doesn’t change the IT organization’s dedication to maintaining traditional responsibilities for security, data integrity, and so on. But the approach has to be collaborative. “I’ve found IT departments that try to extend the command and control mentality into business units that are looking to be more agile and leverage disruptive technologies like social fail—they fail miserably and just get shut out and worked around.”

Avoiding the Risk of “Crowdsourced IT”

Burbary’s point was echoed by Adam Cohen, Senior Vice President for Digital and Social Media at Fleishman-Hillard. Cohen, who spent years helping major enterprises implement back-office systems, highlighted the connections between security, risk mitigation, and “crowdsourced IT.”

“If IT says no to an idea sponsored by a business unit without supplying better alternatives, employees may simply go outside the constraints of IT,” Cohen said. “Technology has changed, and people can get a lot done without involving IT if they want to.” Especially in financial services, he added, “employees talking about anything on social networks in an unsupervised or unstructured way is a risk.” In his view, these factors imply that “it’s actually riskier for an IT department not to be involved in social media.”

Again, IT organizations that embrace this viewpoint can become enablers of positive business outcomes for other areas of the company including marketing, compliance, and sales.

CIOs Look to Emerging Best Practices for Social Business

The good news is that you don’t need to go it alone. Flagship enterprises in financial services and other industries are establishing best practices to embrace the social technologies that provide a competitive advantage and improve internal and client-facing operations while maintaining compliance.

These best practices, which we will continue to discuss in future posts, allow IT departments to move away from “the nexus of saying ‘No’.” We’re here to share what we and our partners have learned from enterprises and IT departments across the industry.

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Drive for Results

interviewed me for my thoughts on his findings a couple of months back and I shared with him much of what you will see below. The title of the study states that “The Bloom is Off the Rose” meaning that advisors are discovering that there is not as much value as proponents of social media claim. While that title is provocative the subtitle “Most Have Unrealistic Expectations Or Fail To Use It Correctly“ gets to the root of the challenge.

Here is my take on how advisors and financial firms should interpret the results of the survey.

My first question to the author was, “are these the same advisors?”

The advisor sample used in 2011 is similar but not the same as that used in 2009. The headline in the RIABiz article seems to indicate that the advisors who were originally surveyed back in 2009 are the same advisors responding to the 2011 survey. This is not the case. It is actually a different random sample of advisors using social media who are reporting a lower level of success than those advisors surveyed two years earlier.

Statistically this is an acceptable practice. Random samples are supposed to guard against selection bias. This is how marketers and political pollsters run their surveys. However, in this case I think it may lead many readers to come to a false conclusion that there is less value to be had for financial advisors on social media now compared to what existed back in 2009.

What I would really like to see is a second survey of the original participants that compares their sentiments in 2009 with the those of 2011. I suspect we might see a different picture emerge than what the 2011 survey respondents reported. Why? Well, I know two years doesn’t sound like a long time but when it comes to social media, it’s a lifetime.

The social media landscape in 2009 was vastly different than the environment in 2011

Below are a few simple facts about the environment in which financial professionals were operating in 2009 compared to those surveyed in 2011.

• The advisors surveyed in 2009 were likely, as a population, much earlier adopters of social media than those surveyed in 2011.
• The population of people and financial advisors on social networks was much smaller in 2009 than in 2011. To put it into perspective, Facebook had 25o million users  back in July of 2009 compared to approximately 900 million at the end of 2011. Twitter is said to have over 200 million users/accounts but over 100 million of those accounts were added in 2010.
• The volume of posts from individuals and brands was much smaller in 2009 than it was in 2011.

Social media in 2011 was vastly different for financial professionals than it was in 2009. This is important to understand.

Why is the difference in the social media landscape between time periods important?

The logical assumption is that it must have been easier for advisors back in 2009. Since social networks and the concept of an interactive web were so nascent by comparison, advisors who were first on the scene found the streams of Facebook, Twitter and LinkedIn paved with gold. The simple act of being on social was enough to make the skies open up and rain assets under management.

As funny as that image is, it actually was a different world back then. As someone who has been using social media since 2004 I can attest that it was much easier to gain access to influencers before their follower counts exploded into the millions and it was much less noisy in peoples streams before every brand in creation started interacting with us all. But, I can also tell you from personal experience that the early (bleeding edge early) adopters back in 2009 and before saw something the rest of the world didn’t yet grasp.

The early adopters saw opportunity before anyone else. We saw that social media was where the world was headed and we got to work. We joined Twitter before Oprah and Ashton Kutcher put it into the collective consciousness. We were the ones inviting our professional networks to try this new thing called LinkedIn and convincing our friends and family that Facebook really had value. So in many ways is was significantly harder to find success on social media back then mainly because the tools were not as widely adopted by the general population.

Convincing people to join a social network is substantially more labor intensive than asking them to connect with you once they are actively using the network.

The opportunity for financial professionals using social media is still great for those who are willing to put in the effort and use best practices.

Success in any business endeavor requires work. It takes effort to build a network and it takes a consistent amount of interaction with that network to build the trust and familiarity necessary to drive business results. I suspect, based on what I commonly see, that many of the advisors surveyed have not yet put the effort into social media that the original population had when it was surveyed.

This suspicion was echoed by the study’s author as well when we talked. His take was that many advisors are sort of poking at social media by publishing links to their blog posts and market commentary but not going much further to build rich interactions with their networks.

This is not to say that the 2011 advisors were lazy. Far from it. They took the initiative to explore new tools and channels for marketing and client service. These advisors, like the 2009 participants, want to grow their business and serve their clients in a manner that suits their needs. However, the bleeding edge advisors I mentioned above were the innovators and pioneered the new space. The next wave likely jumped on to social media without the full conviction necessary to build a robust network and the marketing savvy (as Ron say in his subtitle) to take advantage of the network they did build.

This phenomenon is common. The innovators come first. These people are driven by a fire within to blaze a new trail. Tales of the innovators’ success is told far and wide. Excitement spreads among those itching for an edge and the second wave begins its pursuit of success. In this next wave some succeed and some come up short. Tales of disillusionment and risk begin to bubble up and people wonder if the tales of success were but a fantasy. But then, as the dust clears people begin to see it clearly…the innovators were right. Their vision of the future was true and now a system of success begins to be developed and honed.

A dramatic rendition to be sure but this is exactly what we saw with the gold rush, the industrial revolution, the internet boom, e-commerce and with social media usage in unregulated industries. The brute force, over the top efforts of the early adopters eventually lead to repeatable patterns that others can use to achieve their own success. Systems like the Social Business Activity Cycle are very prescriptive and a direct result of those early efforts.

In my next post I will share a very numbers focused pattern for success. I’ll start with a simple question “How many clients, prospects and referral partners are you connected to via social networks?”

Last week I sat down with Socialware CEO Chad Bockius for our 2012 Predictions webinar, in which we discussed the social media trends he sees emerging in financial services. Now you can listen to the archive of the webinar to hear why Chad thinks that this is the year when social business gets personal, along with his specific predictions for consumers, financial advisors, regulators, and enterprises.

Social Business Questions Advisors and Enterprises Must Answer

Early on, Chad made the observation that “Social is how we live now—not just how we play,” and pointed out that consumers are increasingly turning to their social networks for trusted recommendations on handling their finances. We then talked about a number of issues that financial professionals must address if they want to get the most out of this sweeping change, including:

• What do enterprises need to do to build momentum in social business?
• “Social is the unfair advantage of 2012”—but how engaged does an advisor need to be to expect returns from social?
• What actions can we expect from the SEC and other regulators this year, and what can companies do to be ready?

As you’ll hear in the webinar archive, we left half an hour for Q&A—but still weren’t able to get to all the topics raised by audience members. Here were some of the questions we discussed:

• “Companies are losing support and engagement from the broader firm because only a select few have access to social media. . . . What would you recommend?”
• “Do you have any advice for social networking as it pertains to independent broker/dealers? Is there an added benefit in social media for a B2B-based firm?”
• “When you talk about 100% adoption, are you referring only to the sales force, or to all employees including marketing, product, and support personnel?”
• “We have brokers who are on LinkedIn and they always ask, ‘I’m on LinkedIn, I have connections, now what?’ How would you answer them?”

To hear the discussion around these questions and many others, click here for the webinar archive page. And feel free to leave more of your own questions in the comments on this post.

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Substantial social media change and growth

The entire social media landscape has evolved quickly on the regulatory front (the release of FINRA 11-39 was already months ago!), technology front (numerous updates to Facebook, LinkedIn, Twitter, and more), and also, very importantly, best practices as financial advisors discover and improve upon using social media to develop new and strengthen existing business relationships.

A few weeks ago, Chad Bockius, Socialware CEO, and I hosted a 2011 Year in Review webinar. There were so many potential discussion topics, yet we focused on a few specific points:

• Growth of Facebook, LinkedIn, and Twitter
• Evolution of the regulatory landscape (For even more recent developments, read about SEC and FINRA updates this week.)
• What it takes to deliver social business success within a firm
• It’s about the client, not the firm: how client relationships are changing and why social media matters.

Future social business potential

Since we are already in the second week of January, now it’s time to move onto the potential of 2012.

This week, Chad tackles 2012 Predictions for Social Media in a live interview regarding what to expect going forward. Social networking is getting personal for firms. Here are few topics that you can look forward to exploring:

• Overarching trends for business social networking
• Realizing corporate leadership commitment for social media
• How to grow social media use effectively throughout your organization
• What are some of the emerging social media technologies for 2012?

Tune into the webinar and the Q+A to learn more about what to expect for social business developments in 2012.

This article from InvestmentNews explains the change:

Tweet away: Finra backs off social-media posting regs

While the article is right to emphasize how this change provides a better way forward, advisors can’t just “tweet away” without a second thought. The reality is that post-use filing was always about the content. And it’s still about the content, even though what FINRA is proposing will remove hurdles that have stymied some firms in their use of social media.

Proposed FINRA Changes for Social Media Postings

Here’s the crux of the proposed change, quoted from FINRA’s letter to the SEC of December 22, 2011:

FINRA recognizes that a member may face supervisory and operational difficulties if it is required to file an online forum post given that the member will be supervising such communications in the same manner as correspondence. Accordingly, FINRA is amending proposed FINRA Rule 2210(c)(7) to add a filing exclusion for retail communications that are posted on online interactive electronic forums. Nevertheless, members should be aware that this exemption does not apply to any filing requirement that may arise under either federal law or SEC Rules.

“Retail communication” is a key term here. According to FINRA,

Retail communication would include any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. ‘Retail investor’ would include any person other than an institutional investor, regardless of whether the person has an account with the member.

Even more important—and the reason to be careful about how you “tweet away”— is the last sentence from the first quote: “. . . this exemption does not apply to any filing requirement that may arise under either federal law or SEC Rules.” If the nature of what you’re discussing, via social media or otherwise, requires a filing, it will still require a filing.

The Medium and the Message: Two Compliance Checkpoints

We can think of firms and advisors as having two compliance “checkpoints” for any message they put out:

• Checkpoint 1: the medium. FINRA and other regulatory bodies have always treated different mediums differently. For instance, they don’t expect an advisor to digitally record an in-person conversation the same way they would archive an e-mail. Over the past few years, social media has presented a host of new challenges to regulators, since it often does not fit neatly with existing regulations that address other mediums. The new FINRA approach changes things up—a lot.
• Checkpoint 2: the message. A prospectus is a prospectus and must be treated like one. Some types of content will always require pre-review; some will always require post-review. The new FINRA approach doesn’t change that at all.

FINRA Is Not Handing Out a “Hall Pass”

For more insight on this, we asked for the opinion of Stephen Selby, Director of Regulatory Services at LIMRA. Here’s what he said:

FINRA content standards and filing requirements must not be confused. FINRA advertising filing requirements merely mandate that certain materials have to be reviewed by FINRA at a particular point in time. Regardless of FINRA filing requirements, content standards always apply. When using social media for “business as such,” clear, accurate and suitable information must be provided, conflicts of interest must be disclosed, and both sides of the story must be told about investments and investing strategies.

Keep in mind that advertising rules are not the whole story. FINRA also looks at public communications through a lens of “Standards of Commercial Honor and Principles of Trade,” which covers a whole range of issues. There have been recent proposed amendments to the new advertising regulations, which would potentially relax FINRA filing requirements for certain limited uses of social media. Any potential relaxation of filing requirements should not be confused with a hall pass.

It’s a real benefit for firms and advisors that FINRA is proposing these changes, and I’m sure it will reduce the headaches for the compliance officers we work with every day. They’ll still need to archive 100% of the social media messages that their advisors send out, but the filing burden will be lower.

But Selby hit the nail on the head: relaxed standards for certain types of messages don’t equate to a “hall pass” for all social media conversations. Firms should create strong, sensible policies for social media, train their advisors appropriately, and make sure that they have the right tools in place to ensure that they can still adequately supervise advisors’ social media use. Regardless of how the regulatory standards evolve, we’ll be here to help.

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There are two lessons to take away from this:

1. The SEC has made social media a priority. After yesterday’s news, it’s clearer than ever that 100% of firms should prepare for social media audits by having strong social media policies and social media archiving in place.
2. There’s no need to be scared of social media. Fraud is still fraud. While the social networks do present many new challenges for advisors and compliance officers, when it comes to shady activities, only the mediums—not the underlying rules—have changed.

The SEC’s Stance on Social Media

A year ago, the SEC fired a shot across the bow when it issued its sweeps letter about social media. (Our CEO, Chad Bockius, analyzed the SEC letter in two blog posts, which you can find here and here.) If that weren’t enough of a call to action for firms and RIAs to take social media compliance seriously, yesterday’s action should be. Social media use is widespread, and the SEC has articulated firms’ responsibility to monitor and archive these communication channels.

The SEC’s main communication this week, “Investment Adviser Use of Social Media,” is sober and methodical. Probably none of it will be news to compliance departments that have been actively working with their firms’ advisors or agents to promote the compliant use of social media to build professional networks and increase business. But the SEC guidance is useful for the step-by-step reminders it gives about creating and enforcing consistent and meaningful social media policies that balance risk prevention with the need to do business at a reasonable pace.

Firms have a responsibility not only to implement such policies, but to carry out active monitoring of advisors. Those that don’t could be fined, even in they have a formal policy of prohibition for social network use, because it is unreasonable to believe that policy alone will protect consumers. In our 2011 year-end webinar, Bockius discussed the need for all firms to prepare for social media audits. This week’s SEC action demonstrates how serious that need is.

Be Vigilant, But Don’t Be Afraid of “LinkedIn Fraud”

The SEC’s pursuit of the Illinois advisor doesn’t mean that firms should fear the use of social media—much less avoid it altogether. Some of this week’s media coverage might mislead social media holdouts into taking this view.

Consider the headline of this (otherwise very good) article from AdvisorOne:

SEC Charges Advisor With LinkedIn Fraud, Issues Social Media Alerts

I was trained as a newspaper journalist, so I know what headline writers are up against: they have to compress the whole story into just a few words. Unfortunately, headlines like this one make it sound like “LinkedIn fraud” is some new category of crime. In fact, the misdeeds being investigated by the SEC represent very old types of financial fraud, but simply carried out over a social network rather than in person, via mail, via e-mail, or over the phone.

The article rightly points this out in its eighth paragraph:

“Fraudsters are quick to adapt to new technologies to exploit them for unlawful purposes,” said Robert B. Kaplan, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement. “Social media is no exception, and today’s enforcement action reflects our determination to pursue fraudulent activity on new and evolving platforms.”

Advisors and firms shouldn’t be scared of LinkedIn (or Facebook or Twitter or blogs). Instead, they need to avoid engaging in illegal, unethical, or otherwise prohibited advertising practices . . . just as for every other medium they use.

Regardless of how the story is covered, it’s good to see that the SEC is following through with its commitment to focus on social media. Your firm needs to be ready if the SEC spotlight should fall your way. Is it?