More and more, the financial services industry is realizing the business benefits of online social media tools—as well as the legal and compliance risks that come along with them.
A just-released survey of nearly 200 financial advisers found that more than 60 percent already use social media for business purposes, that figure is expected to reach 71 percent by 2011.
The bad news: 39 percent of respondents said they use social media in violation of their companies’ policies, which often prohibit such Websites as Facebook, Twitter, or LinkedIn. The worse news: 43 percent say their company either doesn’t have a policy about social media or they don’t know what it is.
Bockius
The study was commissioned by SocialWare, a vendor that sells archiving and policy enforcement software. Chad Bockius, CEO of SocialWare, says the results underscore a lack of awareness in the financial services industry about recent guidance from the Financial Industry Regulatory Authority on how to use social media. FINRA published that guidance in January, and so far is one of the few regulators to address the vexing litigation risks social media can raise.
“FINRA was very clear … that if you’re going to use social media you have to have a policy,” Bockius says. Of the 57 percent of survey respondents who said they do have a policy, he adds, “it&rsquos probably a pretty simple one, which is that you can’t use” social media.
The FINRA guidance also specifies that social media content should be archived and audited, yet 66 percent of respondents said they have no archiving processes in place. Another 22 percent said they manually archive data.
For example, Bockius said, some people simply copy status updates or tweets into Excel, or take screenshots of their Facebook page. “Manual process are not only time consuming, but more importantly they are not effective,” he says.
Forty-four percent of respondents also said the inability to archive data properly is a significant deterrent to using social media in their business. Bockius says those concerns are well founded, since the content of social media Websites is quite different than, say, e-mail. If an employee “likes” a post on Facebook or retweets something on Twitter, for example, that can be construed as endorsing third-party content; that can create compliance problems under FINRA rules.
On a more prosaic level, some firms fear that employees will waste too much time on social media sites if they’re allowed to use them. In reality, the survey found the average time spent on such sites is 22 minutes per week.
Financial firms might also miss potential business opportunities by avoiding social media tools, Bockius and others say. Facebook and Twitter alone are hugely popular with hundreds of millions of users and can be useful ways to reach a variety of audiences. During a June 8 Webcast to discuss the survey findings, Debbi Corej, vice president for compliance at Prudential Financial, said her firm views social media as a means “to control the conversations about Prudential … and not have others control it for us.”
“I really do believe that one of the recruiting messages of 2010 for these firms is going to be that they support social media activities.”
—Chad Bockius,
Chief Executive Officer,
SocialWare
And while social media might seem like a fad right now, Corej continued, eventually it will be a standard way of conducting business. “We also didn’t want to run the risk of not being forward-thinking,” she said.
At the moment, however, Prudential’s broker-dealers are still prohibited from using social media until the firm develops the right policies and tools to use such sites in a compliant way, Corej said. “Our policies are evolving as we speak.”
Bockius also contends that the return on investment in social media can be huge. According to the survey, 47 percent of respondents have found at least one referral from their social media activities; 10 percent said they had more than 20. Given that the average financial account tops $300,000, “it doesn’t take many referrals to pay back in spades,” he said.
Best Practices
For firms that are considering social media, Corej, who was part of the Social Networking Task Force that helped develop the FINRA guidance, recommended the following best practices.
Get cross-functional support. At Prudential, for example, department heads from compliance, law, technology, security, human resources, and marketing were brought together to go through the company’s policy and assess whether social media was being addressed; they discovered it was not.
SOCIAL MEDIA USE & POLICIES
Below are two charts from the Socialware survey, “An Examination of Social Media Use by Financial Advisors Across America”:
Based on [the Socialware] survey results, 60 percent of respondents are currently using social media for business purposes and another 11 percent have plans to follow suit in the future. This suggests the increasing need for compliance through firm policies and data archival systems as well as industry standard best practices.
Of those survey respondents who are using social networks for business, only 57 percent are aware that their company currently has a social networking policy in place, and 11 percent of respondents were unsure whether or not such a policy existed. This opens up the firms and advisors to significant risks, especially considering that 32 percent of respondents state that their firm does not have any social networking policy in place.
Source: Socialware.
Adopt formal social media policy. Following Prudential’s original assessment, the company adopted a formal social media policy in March, which tried to address the corporate and business needs of each unit. Each business unit at Prudential must now adopt its own policy, “which has to be more restrictive than the corporate policy,” Corej said. And if a unit doesn’t want to adopt social media, it must have a policy that says as much, she added.
Educate and train employees. Workers must be trained on what the corporate policy for social media is, as well as how social media tools can actually (and wisely) be used. At Prudential, each business unit’s chief compliance officer and chief legal officer receives standard training on the regulatory and risk issues, so they can help their unit craft specific policies and procedures. They also get a demonstration of social media sites’ functionality.
In addition, Corej said, Prudential plans to hold mandatory, Web-based training for all full-time employees as well as temps and vendors working with the firm. That training will address the risks and consequences of using social media in the wrong way, rather than sites’ functionality. “The idea around it is the responsible use of social media,” she said.
That being said, training employees on the workings of individual social media sites is also important, so they can see how FINRA’s guidance applies to specific sites. For example, Corej said, it’s critical for employees to understand whether content is “static” (say, a LinkedIn profile) or “interactive” (such as Twitter). The distinction looms large in how FINRA views communications passed along to financial firms’ customers: Static content must be pre-approved by the firm; interactive content does not.
Assess technology solutions. Since employees will often forget what is and is not permissible in social media, automated tools to prevent non-compliant behavior might also be necessary. Corej said Prudential is working with numerous vendors to launch pilot programs and find the right controls to keep social media usage compliant.
All in all, Bockius says, “firms are realizing that prohibition isn’t the answer.” He compares social media to the rise of e-mail and Internet usage in the 1990s. “The same is going to be true with social networking,” he says. “The only difference is it’s going to come around much more quickly.”
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