This post originally appeared on Forbes
Financial Services firms continue to struggle with the challenge of meeting regulatory requirements to supervise the activities of their financial advisors when they are using new and emerging communications. Although the financial regulators in both the US and Canada provided guidance pertaining to social media years ago, the number of channels is exploding and grey areas still abound. In order to protect the investing public, firms need to supervise, or monitor, their financial advisers as they conduct business conversations with clients wherever the conversations occur. The concept is the same, whether the channel is email, texts, LinkedIn, Facebook, Twitter, Slack, WhatsApp, or even the disappearing SnapChat. But what if compliance could use these tools themselves to supervise the activities of financial advisers?
To learn more about some of these new challenges for compliance officers, I recently had a conversation with Elin Cherry. Elin Cherry is Principal and Head of Capital Markets Practice at Compliance Risk Concepts (“CRC” and has more than twenty years of compliance experience.
Belbey: What are some of the issues that compliance officers are currently facing?
Cherry: I’m finding that conflicts of interest are increasingly a big focus for regulators. However, the good news is that firms can identify almost all kinds of conflicts of interest from within email and texts by looking through their archives. They can use technology to actively supervise certain types activities and communications between the firm, clients and possibly vendors to uncover conflicts of interest.
Belbey: We hear about major conflicts of interest and financial advisors all the time. I’m thinking of a recent case of an arbitration panel fining a firm for failing to supervise the activities of a financial advisor. Not only did the advisor fail to disclose that he was operating a nightclub in Miami, he was selling investments in his club to his clients. The advisor was permanently barred from the industry by Financial Industry Regulatory Authority (FINRA). That’s an example of how a simple Google search would have uncovered a major conflict of interest.
Cherry: We are beginning to see that regulators expect firms to take the extra step to be more proactive and to root out problems before they do. As a best practice, in addition to Google searches, firms should also consider conducting spot checks of the social profile of their financial advisors.
Financial Services firms continue to struggle with the challenge of meeting regulatory requirements to supervise the activities of their financial advisors when they are using new and emerging communications. Although the financial regulators in both the US and Canada provided guidance pertaining to social media years ago, the number of channels is exploding and grey areas still abound. In order to protect the investing public, firms need to supervise, or monitor, their financial advisers as they conduct business conversations with clients wherever the conversations occur. The concept is the same, whether the channel is email, texts, LinkedIn, Facebook, Twitter, Slack, WhatsApp, or even the disappearing SnapChat. But what if compliance could use these tools themselves to supervise the activities of financial advisers?
To learn more about some of these new challenges for compliance officers, I recently had a conversation with Elin Cherry. Elin Cherry is Principal and Head of Capital Markets Practice at Compliance Risk Concepts (“CRC” and has more than twenty years of compliance experience.
Belbey: What are some of the issues that compliance officers are currently facing?
Cherry: I’m finding that conflicts of interest are increasingly a big focus for regulators . However, the good news is that firms can identify almost all kinds of conflicts of interest from within email and texts by looking through their archives. They can use technology to actively supervise certain types activities and communications between the firm, clients and possibly vendors to uncover conflicts of interest.
Belbey: We hear about major conflicts of interest and financial advisors all the time. I’m thinking of a recent case of an arbitration panel fining a firm for failing to supervise the activities of a financial advisor. Not only did the advisor fail to disclose that he was operating a nightclub in Miami, he was selling investments in his club to his clients. The advisor was permanently barred from the industry by Financial Industry Regulatory Authority (FINRA). That’s an example of how a simple Google search would have uncovered a major conflict of interest.
Cherry: We are beginning to see that regulators expect firms to take the extra step to be more proactive and to root out problems before they do. As a best practice, in addition to Google searches, firms should also consider conducting spot checks of the social profile of their financial advisors.
Belbey: So firms are using social media to uncover outside business activities and conflicts of interest?
Cherry: Social media is going to tell you a lot more about your employees than their work email. I recently had a client who asked me to review his employees’ social media posts. The firm was not capturing it. However, they wanted someone from outside the firm to review those personal accounts. They were going to give me all of the Facebook and LinkedIn account information so I could look through everything to uncover possible issues. I was a little uncomfortable with that.
Belbey: Firms want to assure themselves that their associated persons are not conducting business on personal social accounts. Although they may be uncomfortable reviewing these public accounts, some firms use interns to conduct internet searches. Compliance officers have told me that although their associated persons may attest that are not using social media to conduct business, they don’t believe them. So they conduct spot checks and social media searches on those advisors who typically push the compliance envelope.
Cherry: Many financial services firms still prohibit their financial advisors from using social media for business. They feel their hands are tied on Facebook, LinkedIn and Twitter, but want to be on those channels because that’s where their clients are. For them, I suggest that financial advisors create their own personal brand separate from work. Make it interesting enough so that your clients will want to look at it. Get to be known for something other than your work.
Belbey: That’s interesting advice. I actually have a friend who is a financial advisor who is not allowed to use social media to conduct business. He is a huge Bruce Springsteen fan and regales his followers on Facebook, Instagram and Twitter with photos and videos of concerts and book signings. He is out there every day, sharing his passion with thousands of people. All things being equal, I would imagine he attracts fellow fans as new clients. We want to do business with people we like, and who share our passions, right?
Cherry: Sure, you can stay in front of your existing clients and not pitch them, not discuss your firm, not discuss business, yet build a personal relationship by sharing useful information. Be smart though. Stay as far away from the business as you can. Regulators see a big difference between personal and professional use of social media. But the issue is, people are just people, and are bound to blur the lines between business and personal.
Belbey: In any event, the key to protecting the firm from fines, sanctions and negative publicity from the use of social media is strong social media polices. Firms should gather up all the key stakeholders within their firm to craft polices collaboratively. Participants could include representatives from the business, legal, compliance, risk, investor relations, corporate communications, marketing, and of course IT and data security. Together, weigh all your options and make decisions collaboratively. And when you hit a grey area, where there may not be regulatory guidance, discuss your options and then make a decision. Document your thinking in the event that you are audited. The regulators may not agree with your decisions, but they will appreciate your thoughtfulness. The best polices are specific, outline what your employees can and cannot do, and provide examples and screen shots. Conduct training to make sure that everyone understands the polices and then publish polices in a place that is easily accessible. And remember, as this world is constantly changing you will need to update your polices on an ongoing basis.
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