We just released the 2011 version of the survey results with even more data about the impact of social media on the financial services industry, particularly focused on the advisors themselves.

Here’s some background on the advisors:

• Age- It wasn’t just the younger advisors who said they were using social media.  75% of the advisors replying to the survey were 36 years or older.
• Practice type- Advisors from all segments expressed interest in the survey.  Independent advisors, others with large firms, advisors just starting, and many with very established books of business.

Social media usage had definitely increased since last year.  In our 2010 survey, 60% of the responding advisors were using social for business purposes.  Fast forward to this year, and the number was greater than 80%.  And they are seeing results telling us about the referrals, prospects, and new clients coming from developing and deepening relationships through social media.

Prioritizing social media among the advisor’s tool set of options is increasing as well, so it’s not just a matter of “using social media.” Here’s how some of the advisors described social media in their own words:

• “This is where the people are.”
• “I think it’s a must going forward if you look to be competitive.”
• Social media is a “great way for prospects and clients to learn more about us and deepen relationships.”
• “We want to grow our firm by 20% annually for the next 5 years. We find social media to be an incredibly cost effective way of achieving that.”

To learn more about the survey results, the executive summary is available now.

At our recent customer user group meeting, we were impressed by how open and frank our customers were with us, but more importantly with each other.  With a common goal in mind of developing a community that allows sharing of best practices and pitfalls, we spent a day working through a number of challenges and opportunities.

One of the hottest topics that everyone wanted to discuss was static vs. interactive.  When all was said and done, we agreed on two things.  (1) Content (i.e. what is posted) is king regardless of how/where it is posted.  Trying to label specific features of a social network, as static or interactive is a fool’s mission.  And (2) intent is everything – using the term “extemporaneous” to focus your compliance guidance was well accepted by all.

This led us directly into a conversation tied to pre-review and post-review.  Because of the conclusion on static content, it was agreed that pre-review of content is a critical aspect of a compliance solution and without it you cannot truly be compliant.  However, this does not relieve the compliance obligation, which demands that all information available must be captured whether, performed on network or off network (home computers).  It was very reassuring to all attendees when hearing peers confirm understanding of the regulations and ensure they are using the same solution to meet those regulatory requirements.

Part of our conversation focused around the constant changes occurring daily with the social networks.  Everyone was relieved to hear Socialware’s approach to addressing these changes through our agile product management and development strategy.  This was reaffirmed when Facebook announced a new video chat feature through a partnership with Skype. On that same day, we released a blocking filter should you choose to block this functionality for your users.

Personally, it was a very enjoyable day watching so many of our customers across numerous companies interact with each other.  We all walked out in the afternoon smarter and more educated for the time spent.  I’m looking forward to the next one already.

Here are some of the key findings on advisers use of social media:

• 44% of investment advisers use some form of social media and this number is trending up for next year.
• 41% of advisers age 42-51 and 31% of advisers 52-61 use at least one form of social media. This group represents the largest use across the survey population.
• LinkedIn is the most popular social network used at 41%, Facebook is second at 14% and Twitter is third at 8%

When it comes to social media compliance, firms and their advisers are clearly putting themselves at risk for fines, suspension and possible lawsuits. Take a look at these key findings from the survey:

• 69% of firms using social media stated that they have no written record retention policies for social media content.
• 57% of firms using social media stated that they do not retain all content posted on social media websites.
• 68% of firms using social media stated that they don’t have written policies and procedures governing the use of social media by employees.
• 52% of firms using social media stated that the firm does not monitor or review social media content produced by its employees for business-related purposes.

In the words of the Securities Division, “the Survey suggest that investment advisers using social media sites for business communication may not have implemented sufficient recordkeeping systems and/or supervisory and compliance procedures.” This is clearly an understatement of the situation they discovered. Firms should consider this an early warning to the increased level of scrutiny coming down at the state level.

These results come on the heals of FINRA’s latest announcement that they are going to offer additional guidance on social media use by Registered Reps. This Notice, an extension to what was provided in Notice 10-06, is aimed at clarifying key questions arising from the industry.

As we’ve said before, the social media train has left the station. Advisers are going to use these platforms to grow their business (regardless of corporate policy) and the clock is ticking for firms to embrace this movement and ensure compliance. FINRA has already started their examinations on social media and you can expect states like Massachusetts to follow suit very quickly.

• What does the Sweeps letter mean for the industry?
• What should I do now?
• What resources are available to help me get compliant, quickly?

Before we dive in, if you haven’t read Part 1 please check it out for some background on this discussion.

So what does this mean for the industry? First and foremost it is a wake up call.  Remember social media is no different than any other form of electronic communication. Content that is considered an advertisement is an advertisement, regardless of the medium (website, forum, social network, etc).  In a nutshell everything has changed but nothing has either. The communication mediums have changed drastically but all the same rules apply. The FSA made this clear, IIROC made this clear and so did FINRA.

In a recent Wall Street Journal article they shared that “an SEC official said that misuse of social-networking sites is an issue that is cropping up during SEC examinations and enforcement actions. Problems include advisers who use false information in their LinkedIn profiles or overstate their experience, said John Walsh, associate director and chief counsel of the SEC’s office of compliance inspections and examinations.”

It is clear that social media has caught the attention of the SEC (and every other regulator for that matter).  Following this sweep and increased scrutiny I fully expect to see fines and perhaps a summary of lessons learned from the SEC. I doubt there will be any new rulemaking, at least not in the short term. FINRA, IIROC and the FSA have all found their existing rules to be sufficient, although clarifying guidance has been issued.

What should you do now? Here are five tips you should consider to make sure you and your firm are protected:

1. Take action immediately. Start with an audit of your firm’s policies on social media use. If you don’t have one, put a policy in place immediately.
2. Review the regulator’s guidance on social media, like FINRA 10-06. Use this as a best practice template on how to proceed.
3. Audit your firm’s use of social media. See how it is being used, the value it is driving and how big of a compliance problem you have today.
4. Put in place the necessary tools to automate the compliance process to ensure you and your firm are protected.
5. Train your advisers on the compliance issues and best practices associated with sites like LinkedIn, Facebook and Twitter.

To help get you started I’ve compiled a list of resources that might help:

Whitepapers / Guides

• Companion Guide to FINRA 10-06
• Guide to Twitter Social Networking Compliance
• Guide to LinkedIn Social Networking Compliance
• Guide to Facebook Social Networking Compliance

Webinars

• Social Media Adoption Lifecycle (a series of 6 detailed webinars)

Community

• SocialTurns.com

We will keep following the moves of the regulators in this space. Check back for additional information soon and let us know how your efforts to adopt social are going.

There has been a lot of speculation about what it all means for the industry. Before offering a point of view on that question let’s review what it said exactly:

• SEC: “All documents concerning any communications made by or received by [Adviser] on any social media site”
  In other words, you need to be archiving your social media activity. You should look for an automated approach to capturing all the required content and recognize that unless the solution can capture 100% of the data created on these sites, it isn’t a solution.

• SEC: “All documents concerning [Adviser]’s policies and procedures related to the use of social media web sites by [Adviser]”
  Just like email and IM, this form of electronic communication must be governed by a set of policies and procedures. Your policy should outline at a high level the corporate approach and guidelines to social media.  Your procedures should define the who, the what, the where, the when and the how of the policy itself.

• SEC: “All documents concerning [Adviser]’s policies and procedures concerning a third party’s use of any social media website maintained by [Adviser]”
  The question of 3^rd party comments really hits on the topics of entanglement and suitability. A comment on a social media site alone does not equal an endorsement, but there are situations that you must consider and construct your policy and procedures with those in mind. For example, how will you treat the “liking” of a comment or the “favoriting” of a tweet? If it occurs on the wrong comment you could create an issue for yourself. If it occurs on a benign statement the regulators will not take issue.

• SEC: “All documents concerning [Adviser]’s policies and procedures related to the use of social media websites by [Adviser]’s personnel for personal, non-business related matters”
  The topic of personal vs. professional is a complicated one. First, you are not allowed to have separate identities on social media sites, it is against the terms of service for LinkedIn and Facebook. Second, it is often the personal relationships that ultimately translate to business. There are multiple ways to account for this issue. Some are policy based and some are driven by technology. Check back for more on this topic as it really warrants an entire post.

• SEC: “All documents concerning [Adviser]’s personnel training and education related to the use of social media websites by [Adviser], whether for personal, non-business related, or business related matters”
  One consistent thread from all of the regulators in on the topic of training. If you are going to open up access to social media you must train on the policies and procedures. Additionally, it is a tremendously valuable investment to help individuals understand how to apply these new platforms to accomplish key business goals. On that topic, LIMRA and Socialware have recently released a whole series of training to specifically address everything from the regulatory issues to the business best practices.

• SEC: “All documents concerning [Adviser]’s record retention policies and procedures concerning the involvement with or usage of, whether for personal, non-business related, or business-related matters, any social media website maintained by [Adviser]”
  Not only is it critical to archive this electronic communication, it is also your responsibility to document what is required to be archived.  This documentation should account for the individual Advisers as well as anyone that supports them in their social media efforts.

For those of you that haven’t seen the Sweeps letter, I hope this detail helps. In a follow-up post I will address the following:

• What does the Sweeps letter mean for the industry?
• What should I do now?
• What resources are available to help me get compliant, quickly?

After reading through the Notice here is my take and a few of the most interesting points:

“Whether materials are classified as advertising or sales literature will generally be determined by their content and purpose rather than by the method of communication used”

In other words the communication platform itself doesn’t dictate the regulation but the content & distribution does. This mirrors FINRA’s guidance as well. There was no new regulation issued as part of 10-06 it simply clarified existing regulation in the context of social media sites like Facebook, LinkedIn and Twitter.

“Dealer Members’ policies and procedures should include a process to approve the involvement of particular individuals in such endeavors, and guidance and training to ensure that they are aware of the boundaries between general commentary and advertising or sales literature.”

Social media can create many new opportunities and challenges. As a result Dealer Members’ must train on the ins and outs of these sites and ensure individuals understand the compliance boundaries. FINRA made this same point in 10-06.

“Dealer Members must therefore design systems and programs with compliant record retention and retrieval functionalities for all methods of communication”

This means that all of your content associated with business activity on social networks like Facebook, LinkedIn and Twitter must be archived according to NI 31-103.

From a supervisory standpoint they point out that it is at the discretion of Dealer Members to determine whether to employ pre-use approval, post-use review or post-use sampling. However they go on to say “Static content, such as a profile, background or wall information, usually considered an ‘advertisement’, must be pre-approved pursuant to IIROC Dealer Member Rule 29.7(3).” They further clarify that “an interactive electronic forum such as Facebook and Twitter, on the other hand, includes real time discussions and although it does not require prior approval, must be supervised to ensure compliance with IIROC Dealer Member Rules and securities legislation.”

While they don’t go into as much detail as 10-06 offers, it is pretty clear that they are relying on the same definitions of static vs interactive so the classifications identified through the interpretation of FINRA’s Notice should apply here as well. If you haven’t downloaded the social networking compliance guides that offer this detailed classification you can get them here.

As it relates to third-party communications and research they point out “third party posts may be attributed or considered an endorsement by the [dealer], thereby triggering regulatory and legislative requirements. For example, re-tweeting a client’s post or providing a thumbs-up may be considered an endorsement.”

This interpretation is identical to what we’ve seen on the FINRA side as well. The Guides mentioned above discuss these types of issues and provides recommendations as to whether you should block or allow the site functionality.

It is great to see IIROC providing this additional clarification. Judging from the activity here in the U.S., this Notice should help Canadian firms accelerate their move from prohibition to participation, all in a compliant fashion.

The year got started off with the much-awaited guidance from FINRA regarding the use of social media for regulated reps. Notice 10-06 clarified how financial firms should use social media in a compliant fashion and with this Notice in hand many got off the sidelines and into the game.

Of course, advisors had already started to experience the benefits of social media for their business. In a survey of regulated financial advisors Socialware found:

• 60% were already using social media for their business
• 36% acquired new customers
• 40% were using these sites, while knowingly violating the corporate policy of prohibition

And really, how can you blame them. Social media represents the greatest shift in how we connect, communicate and share. Consider a few of these milestones that social networks hit in 2010:

• Facebook reached 500 million users (only to recently break the 600mm mark)
• Twitter reached the 190 million user mark and 56% of these users rely on Twitter for business purposes
• LinkedIn reached 90 million users (only to surpass this mark by reaching the 100mm user mark in January. The growth is to be expected when you see stats like the one regarding their InMail service. It is 30X more effective than a cold call! I don’t know about you but I’d rather send one InMail vs. making 30 phone calls.

All of this success and activity has caught the regulators eyes. FINRA started completing LinkedIn audits in 2010. In addition, the SEC sent out a sweeps letter regarding social media (look for a blog post soon on this topic).

The good news is that Socialware’s nearly 100 customers can sleep easy at night knowing that they are protected, in full compliance and are on the path to realizing the potential that social media has to offer.

So thanks to everyone for an exciting 2010 – we know this is just the beginning of the great things to come as the financial services sector fully embraces social media.

This got me thinking about firms that are trying to manually monitor LinkedIn. Not only is it inefficient but it’s also ineffective. For example, say that you are going to rely on LinkedIn’s search to find reps from your company. The site offers a fast way to browse profiles, but they limit you to 300 results. This is a huge issue.

The only other option is to manually search for reps by name. Talk about a waste of time. And what will FINRA think of this approach to supervision? In the recent MetLife ruling FINRA fined the insurer $1.2mm because their email supervision approach was “hardly an effective means to detect misconduct.”

We recently spoke to a registered rep of a top 10 wealth management firm. Their policy allows reps to have LinkedIn profiles but they must be pre-approved (more on that later). While the content of the profile is approved by the Ad Review Department, there are no automated mechanisms to detect misconduct or better yet, ways to prevent it in the first place.

Taking advantage of LinkedIn’s Advanced Search I was able to find reps of this firm that had recommendations, certifications, personal activities and group associations – all violations of the firm policy and in some cases violations of SEC/FINRA regulations. The reality of social networking compliance is that the policies and procedures must be automated. The volume of content and activity is simply too high and the pace of change is too great.

So what exactly do firms need to be thinking about when it comes to LinkedIn compliance? Early this year FINRA published 10-06 as we all know. Even though the notice has been out for almost a year there still seems to be confusion. Let me try to clear up some of the confusion.

1. There are no new rules, just interpretation of the existing ones.
I took this point for granted early on. But as I talked to more and more companies I got the sense that organizations felt they had to deal with new FINRA rules. The reality is that 10-06 is simply an interpretation of their existing rules. Here is a snippet from the Notice that makes this point.

FINRA is issuing this Notice to guide firms on applying the communications rules to social media sites, such as blogs and social networking sites…At the same time, FINRA is seeking to interpret its rules in a flexible manner to allow firms to communicate with clients and investors using this new technology.

2. LinkedIn IS a social network
Another point I’ve heard from the industry is that some compliance departments don’t believe LinkedIn is a social network and as a result 10-06 doesn’t apply. FINRA actually calls out LinkedIn specifically in their notice and the same rules apply here as they would for Facebook, Twitter or other forms of electronic communication.

“Social networking sites, such as Facebook, Twitter and LinkedIn, typically include both static content and interactive functions.”

3. LinkedIn content must be archived and supervised
Yes and Yes. FINRA differentiates between static and interactive content on the social networks. They point out that static content is information like a LinkedIn profile and as with other web-based communications a registered principal of the Firm must approve all static content on a page of a social networking site before it is posted. This can create an issue for firms that don’t have the ability to manage access to the edit features of these profiles. Otherwise you are trusting a rep won’t violate policy, and testing against your policy would be highly manual and error prone.

In addition, FINRA makes it clear that every firm must ensure that it can retain records of social media communications as required by Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934 and NASD Rule 3110. For firms that allow access to LinkedIn without automated archiving and supervision this creates a massive risk. Here is a quick example of one risk that most firms overlook.

The main driver of value on LinkedIn is your network. You build that network by inviting people you’ve worked with, clients, prospects, recruits, etc. As you can see from the form above you create a short note to the contact so they remember you and understand why you are asking to connect. For firms that allow access without an automated solution they are going to miss every connection note (won’t be archived or supervised) and be in direct violation of FINRA/SEC.

If you are looking for more information on understanding FINRA 10-06 or LinkedIn specifically you can download the following guides:

The Companion Guide to FINRA/SEC Social Networking Compliance

A Guide to LinkedIn Social Networking Compliance

Powered by Socialware’s Compass solution, the new integrated offering combines our unique abilities around social media archiving, pre-review, feature-level policy automation and social media analytics with AdvsiorMail so firms can take advantage of the opportunity social media presents, in a compliant fashion.

As we’ve discussed before, the compliance questions around social media continue to grow. Should you open access? If you do, how do you supervise the content? How can you ensure reps and employees follow your policy? The list goes on and on. The fact is, every social media site poses its own unique challenges and considerations. To help firms get clarity in this area, we’ve published numerous guides and webinars which can all be accessed through Socialware Insights.

By combining Compass, AdvisorMail and our ongoing commitment to provide expertise from both a compliance and best practice standpoint, firms can now adopt social media confidently, quickly and on their terms – critical to managing the compliance issues that face this industry.

To learn more about this integrated offering please contact your LiveOffice representative.

1. LinkedIn Groups Overhaul

Groups are a great way to connect with the broader LinkedIn network, to find new contacts through shared interests and to discuss specific topics. And now this great resource has gotten better. Last month LinkedIn rolled out an improved look and feel with the goal of replicating face-to-face conversations. The new design also makes it easier to use. With a new voting system, content that is valued by the group will rise to the top and will be surfaced for all to see. Combined with the new following capability, LinkedIn has made it easier than ever to stay up to date on group discussions.

2. LinkedIn Inbox Updates

Speaking of email, LinkedIn has completed an overhaul of their built-in email system. Like Groups it all starts with an improved look and feel that you will notice right away on the home page. In addition, they’ve made it easier to manage emails through bulk actions, something we are all used to in our traditional email clients. And although it sounds strange you can finally delete messages in LinkedIn. This is great from a user’s perspective but compliance officers should take note that real-time archiving should be the goal if you are going to open up access to LinkedIn in a compliant fashion (as it relates to FINRA 10-06).

3. Improved Twitter and LinkedIn integration

I’ve shared before my belief that you get the most value from your social networking investment when you integrate your activities together. LinkedIn just made this process easier. They’ve updated their Twitter application to follow LinkedIn Connections directly from LinkedIn.com. Once you’ve installed the application, access it using the “More” menu and start following your connections.

4. LinkedIn “Likes” Addition

We are all familiar with this concept. You read a status update on Facebook, see a picture, watch a video and you click that little “Like” button letting your network know what you are reading or watching and the fact that you appreciated the content. Well this functionality is now available on LinkedIn. Liking a piece of content in LinkedIn will trigger a news feed update so your network can see what you are reading. On Groups, members who consistently contribute to discussions, and have a large number of followers, will be marked as “Top influencers”, making their ‘Like’ worth more than others. Keep this in mind as you work to grow you reach and influence across the 70 million LinkedIn users.

5. LinkedIn Compliance Guide

With all the opportunity LinkedIn provides many regulated firms have been grappling with the compliance issues and trying to balance those with the business benefit. To help jump-start your efforts we’ve outlined almost 30 LinkedIn features, explaining each in detail, associated it with a content type (based on FINRA 10-06), classified it according to the FINRA/SEC guidelines, offered a set of compliance considerations, and provided a specific recommendation to help jump-start the creation of your social networking policy and plan. If you haven’t downloaded this free guide, get yours today.

6. LinkedIn Best Practices (Webinar)

Like many people we talk to, the conversation quickly turns from “how can we open up access” to “how do we get the most out of our investment.” Thanks to Kip Gregory, Principle of The Gregory Group, and Mike Williams of Socialware, you will get answers to this question and so much more. They share their expertise on how advisors and agents can use this great resource to help drive their business. While the webinar took place in June you can watch a recorded version here.

6.5 Upcoming webinar on LinkedIn Social Networking Compliance

If you are looking for more information on understanding the compliance issues with LinkedIn be sure to register for our upcoming webinar taking place on July 13th. Learn more and register here.

I hope you find these resources helpful. Stay tuned for more great content and updates. And don’t forget to check out our newly revamped site for Socialware Insights – all of our Guides, Resources, Webinars and more now live under one roof.