Bailyn's Web site, sporting the Premier Financial Advisors logo, posts a sophisticated video discussing his background, blog commentary and selected comments from readers. He thinks that in the future social media will be the most significant marketing tool for advisors.
Many agree. Social media has reportedly attracted major players-Morgan Stanley Smith Barney, Commonwealth Financial Network, LPL Financial, Vanguard Group and Fidelity-to name just a few.
Yet Bailyn is more active with social media than many other financial advisors. Perhaps that's because federal regulators, citing the misuse of these tools and fraudulent online investment schemes, have been cracking down on social media use by financial professionals. As Finra and the SEC have issued alerts and guidelines on social media compliance over the last three years, some advisors say broker-dealers and custodians have become more conservative. Given all the other financial regulatory changes lately-including those triggered by Dodd-Frank-many advisors are simply too busy to conquer all the hurdles involved in becoming more aggressive online.
"I do have a very small Facebook page, but I really don't maintain it," says Gregory M. Curry, a fee-only advisor and CPA at Pillar Financial Advisors LLC in Louisville, Ky. "The compliance issues are something I'm not ready to tackle at this point. I've got a small, pretty focused business. Most clients come through referrals and professional networks. I've not felt the need to expand marketing efforts."
To use social media, RIAs must comply with federal securities laws, including antifraud provisions, compliance provisions and record-keeping provisions, according to an SEC risk alert issued in January. According to the SEC, "Investment advisors that use or permit the use of social media by representatives, solicitors and/or third parties should consider periodically evaluating the effectiveness of their compliance program as it relates to social media." The agency prompts firms to create usage guidelines and content standards for their employees, as well as sufficiently monitor and approve the content and training. "Particular attention should be paid to third-party content, if permitted, and record-keeping responsibilities," the SEC alert says.
An SEC staff review indicates many firms' advertising, communications and electronic communications policies fail to clearly single out social media use. Many procedures do not specify which types of social networking activity are permitted or prohibited by each firm and many don't address the use of social media by solicitors.
Though the standards are believed to be looser in the insurance industry than they are in the brokerage and advisory worlds, the National Association of Insurance Commissioners has a social media group that has been drafting a working paper on social media and its use in insurance.
The chief problem, say compliance experts, is that it's hard for employers to monitor their employees' communications-particularly on fast-moving interactive Web sites like Twitter and inside chat rooms.
Thus, many have adopted a policy that prohibits their employees from doing any social media business communication whatsoever, says Gary C. Watkins, a partner in the New York-based ACA Compliance Group LLC. "Larger institutions are embracing this technology," he says. "They have deep pockets to put the resources in place to ensure compliance with the regulatory requirements. But smaller to medium-size firms are taking the position of not using social media Web sites because of the cost and time needed to monitor compliance."
Personnel are being hired specifically to confirm that employee communications posted on social media Web sites are permissible, according to Watkins. If not, the information is copied and may become a human resource issue.
Some firms, Watkins adds, have been considering systems that would require employees to accept a compliance department rep as a Facebook friend to monitor activities. And some are randomly checking to make sure that employees are not using social media Web sites for business purposes.
Morgan Stanley Smith Barney, one of the most outspoken proponents of social media, has reportedly limited employee participation on Twitter to a series of company-approved "tweets."
Financial advisors say they'd love to make greater use of social media, but thanks to the regulatory climate, they're barred. "UBS rules are more stringent than Finra's," notes Dennis Melchior, a Palm Beach, Fla.-based financial advisor with UBS' Price Wealth Management. Melchior, who says he'd love to post information on social media about his extensive financial background, says he is only permitted to use LinkedIn-not Facebook. There must be a link to the UBS Web site. And he can only post a UBS-approved bio. For his education, he says, "I can put where I went to school, but I can't put down the types of degrees I have," he chuckles. "I can list that I worked at Salomon Brothers and First Boston, but I can't tell anybody what I did."
Elliott Curzon, a former Finra attorney and partner with Dechert LLP in Washington, D.C., says brokers generally are more heavily regulated than investment advisors when it comes to social media. Advisors, who provide services and have a responsibility to act as fiduciaries, don't get paid for the sale of products, and thus run a lower risk of providing misinformation about them.
Brokers, on the other hand, have a greater risk of saying something that is prohibited in advertising and communications rules, he says. Curzon says he has heard rumors that firms are developing surveillance systems similar to those used for e-mail. Keyword triggers may be set up, for example, to monitor employee online postings or chat room conversations. Problematic issues would be flagged for further review.
At least one California financial advisor, who asked not to be identified, is on LinkedIn, but says his compliance department wants to be able to monitor all correspondence. The e-mails can easily be tracked and saved, but message boards, discussions, Facebook and MySpace are prohibited. When he's on those sites, he can't make any reference to his line of work. "It would be nice to be advertising for seminars that we're doing," he says. "We're not able to do that."
One major problem is that he works with a lot of young physicians in medical school, and many use Facebook instead of e-mail. "If I want to reach them to confirm an appointment or follow up on any sort of business, [the physicians] prefer that I do it on Facebook," he says. "I have to tell them I can't."
Bailyn says his firm's turnaround time for online media approval typically is faster than most-often within 24 hours. Still, that's not exactly on pulse for a Twitter posting.
Bailyn, author of the book Navigating the Financial Blogosphere, says he might want to tweet something like, "Have you checked your 401(k) today?" A potential client response might be, "Yeah. I've been meaning to talk to you about that." Bailyn's understanding is that he would need to submit such a tweet to his compliance department. "My concern is I won't be able to be exactly on the pulse when seeking approval on a lot of content before it goes up," he says. "Social media is supposed to be on the minute."
Periodically, Bailyn, also a registered rep with San Diego-based First Allied Securities, will do a few blog posts about investment products and submit them simultaneously to Finra for approval. "The rest of the year, I'll blog about the economy or financial planning."
Finra lets you comment on investment products, he says, but if the investment has a prospectus you must file the comment with the regulatory group and get approval. Often, Finra will make cumbersome changes, watering down your important points.
Say you want to blog about exchange-traded funds. Finra, he says, might add words like "potentially" or "possibly," or modify things that leave room for interpretation so it becomes vaguer.
For example, if you want to say exchange-traded fund pricing is worse at the very beginning and very end of the day, Finra might insert specific times, along with extraneous words, such as "please contact your investment advisor for verification," Bailyn notes. The organization doesn't want investors to start trading exchange-traded funds in any particular way because of something an advisor posted.
Bailyn has a filter on comments his blog receives. "None get posted until after I read them, and I end up denying the majority," he says. "A lot are people trying to drop notes about their Web sites or firms-garbage. They have nothing to do with my article.
"If someone says, 'You invest in exchange-traded funds, but I like mutual funds,' I'll delete it," he adds. "As the rules work, anything that is offered by anyone in a prospectus should be deleted."