Nearly half of all financial advisors have successfully used social media to convert prospects into clients, according to Accenture, while a further 9% of investors claim firms that fail to leverage social media will lose clients to those that use social media to engage clients. But advisors must walk a fine line between compliance and personality when it comes to engaging with existing and prospective clients on LinkedIn, Facebook, Twitter and other networks.

Most financial advisors leverage social media as a thought leadership and relationship-building tool rather than using it for outright promotion. For example, they may share relevant content, join LinkedIn groups and post links to their blog content. These activities may seem harmless on the surface, but firms should take precautionary measures to ensure that they’re in compliance with the latest regulatory guidelines to avoid any issues. (For more, see: How Financial Advisors Are Leveraging Social Media.) 

In this article, we will take a look at how financial advisors can comply with social media compliance guidelines while effectively utilizing the medium.

Things to Do

The Securities and Exchange Commission (SEC) and FINRA have made a number of recommendations to financial advisors looking to remain compliant.

  • Adopt Policies. FINRA recommends that financial advisors adopt policies and procedures that reasonably ensure that individuals who participate in social media for business purposes are properly supervised, have the requisite training and background in such activities and do not pose undue risk to investors. In addition, firms should have a policy that forbids employees from engaging in business communication on unsupervised accounts.
  • Archive Everything. FINRA Rule 3110 requires that financial advisors keep records of all communications, including those made through social media. While there’s no specific guidelines for the length of time the records must be kept, most financial advisors maintain archives that go back a minimum of three years. The good news is that there are many services that can help with archiving, including HearsaySocial
  • Post Disclaimers. Financial advisors must communicate in an open and transparent manner, which means including disclaimers for all advertisements and promotions. Often times, financial advisors do this with the #ad hashtag that indicates that the message is an "advertisement" and should be read and interpreted as such. Any pages that are linked to with social media should also include any required disclaimers. (For more, see: Social Media 'Don'ts' for Financial Advisors.)

    Things to Avoid

    Regulators have also issued guidance on practices that financial advisors should avoid in order to remain in compliance and avoid any penalties.

    • Avoid Recommendations. FINRA Regulatory Notice 10-06 requires that financial advisors avoid "endorsing" content on social media. In addition to professional accounts, financial advisors should include a disclaimer on their personal accounts stating that any shared content or actions taken on their account do not necessarily reflect the views of their employer. This helps prevent any confusion and enables advisors to have their own voice on personal accounts. (For more, see: How Advisors Can Get Social Media Right.)
    • Don’t Repeat Past Issues. FINRA recommends prohibiting or placing restrictions on individuals that have presented compliance risks in the past, particularly concerning sales practices, from establishing accounts for business purposes with social media websites.

    The Bottom Line

    Social media is widely used by financial advisors to attract and retain clients, but it’s important to keep abreast of the latest regulatory guidance and ensure the proper compliance. By implementing the right policies and avoiding common mistakes, advisors can leverage these powerful social media tools without risk of penalties. Many software tools can also help ensure compliance as these regulations evolve to meet the latest technologies.

    Financial advisors should look into software solutions that specialize in social media management for an advisor audience. In addition, advisors should keep up to date with the latest guidance from FINRA and the SEC by regularly checking their websites. (For related reading, see: How Advisors Can Carve Out a Social Media Niche.)