Brokerages slow to join Twitter revolution

NEW YORK — Social media sites are redefining the way businesses reach their customers, but securities firms are largely absent from the revolution.

Regulators and company rules at brokerages have slowed the adoption of social media by the financial services industry, said Margaret Paradis, a New York-based partner at law firm Baker & McKenzie, who advises brokers and fund managers. Firms banning employees from using sites such as Facebook, LinkedIn and Twitter are limiting access to cheap and easy-to-use competitive tools, she said.

"Networks and referrals are how this business is done," said Stacey Haefele, president and CEO of New York-based wealth marketing firm HNW. "By ignoring social media, you risk not being out there where your clients are."

About 84 percent of U.S. brokerage firm employees polled by HNW said they don't use social media because company and industry regulations make it too burdensome, she said.

The Securities and Exchange Commission, which regulates the securities industry, says all broker stock recommendations must be "suitable" for individual clients by measuring their risk tolerance, security holdings, income, net worth and investment objectives, according to the agency's website. Tweeting a stock pick or posting it on Facebook generally breaks this rule, said David Sobel, executive vice president and compliance officer at New York-based Abel/Noser, which helps clients lower trading costs and does allow its employees to use LinkedIn for networking.

Firms such as Bank of America's Merrill Lynch and TD Ameritrade generally restrict all broker-to-investor interaction on social media sites because of concerns they may violate SEC rules and those of the Financial Industry Regulatory Authority, the nongovernmental body that oversees almost 5,000 brokerages. Brokers who break the rules may be fined or suspended for communicating in a manner that's viewed as intentionally or recklessly misleading, Finra said.

Finra requires companies to supervise and store all broker-client exchanges, such as e-mails and now Twitter posts and Facebook updates. Brokerages also are required to approve most postings on websites, said Tom Pappas, vice president for advertising regulation at Finra. Finra released a regulatory notice in January with guidelines for firms using social media. "We issued these standards to help firms understand and follow the rules," Pappas said.

Nearly half of 623 financial advisers in a survey released by HNW on Oct. 26 said they haven't figured out how to mix social media tools into their marketing strategies. HNW surveyed national brokers, registered investment advisers, independent broker-dealers and dually registered advisers.

Vanguard Group, the Valley Forge, Pa.-based investment manager, now permits employees to use Facebook and LinkedIn as long as specific investment recommendations aren't given. Twelve workers spent three months blogging, posting and tweeting part-time on social media sites to figure out the best way to use each, said Amy Dobra, who heads the company's social media efforts.

"We didn't just say we're going to go on Twitter because everyone's going out on Twitter," she said. "We watched."

Vanguard's competitors, such as Charles Schwab, TD Ameritrade and Merrill Lynch, use Facebook pages for general information and marketing without providing specific investment advice. Some brokerages use Twitter the same way.

Firms should make their commentary on social networks relate to people, said Jack Dorsey, chairman and co-founder of San Francisco-based Twitter. "The more human you make it, the more interest you'll have," he said. "It can't feel like something from the PR department."

A study by the Aite Group showed that fewer than 10 percent of financial services firms have a separate social media budget, according to a Nov. 17 study of 166 executives by the Boston-based market research and advisory firm. Six in 10 financial firms consider themselves to be social media novices or beginners, the study said.

"You talk to the marketers in these organizations and they're so obsessed with how many Facebook followers and 'likes' they have," Ron Shevlin, a Boston-based senior analyst who wrote the study for Aite Group, said. If there are half a million people looking at a company's page on Facebook, "how is that any better than fighting for attention with a TV commercial?"

Companies that actively engage potential customers will see better results if they integrate social media into current sites. Creating a sense of community with clients is crucial, Shevlin said.