Some things are inherently dangerous in the wrong hands. You don’t give scissors to babies; you don’t give three-alarm chili to your aunt from Minnesota, and you never, ever, give Twitter accounts to stockbrokers.
Ignoring this guidance, one major financial institution recently announced that it will do limited testing, allowing a small portion of its sales force to use Twitter’s messaging service. To date most major firms have resisted the siren song of social media. While financial institutions often like to be perceived as bringing their customers cutting-edge technology, they have been reluctant to give individual investment advisers access to Twitter for one simple and valid reason. If you give thousands of commission-based sales people access to broadcast media, someone is bound to say something stupid.
The financial industry and its regulators are facing a defining moment in the development of technology in their market. Twitter has the First Amendment and the seemingly unstoppable march of technology on its side. Opposing this onslaught is the core essence of the U.S. securities code – protect the investor by requiring adequate disclosure.
FINRA and the SEC have spent decades fine-tuning the necessary disclaimers that must accompany securities offerings – think “past performance is no indication of future performance.” Standard disclaimers for foreign exchange trading, for example, typically run 1400 characters, or 10 times the maximum limit for a “tweet.”
Undoubtedly, before allowing brokers and sales staff to start tweeting, they will be given instructions and hefty compliance manuals outlining the dos and don’ts of compliant tweeting. But we all understand that this new age of social media is different.
When our securities codes were written, sales were done with a visit, a phone call or carefully crafted letter. Over time, brochures and advertisements became more commonplace. It was only with the personal computer and the ability to self-publish, combined with the distribution capabilities of email, that things really started to change.
Investment advisers routinely reach dozens, even hundreds, of customers with the touch of a “send” button. But with all of the risks associated with the current methods of corporate communication, there is at least a modicum of reflection that takes place.
Twitter was designed to be different. It was designed to be personal. It was designed to be spontaneous.
The hope is that investment advisers will use this new electronic megaphone to alert followers that their firm is having a seminar or that they can go to the company website and find more information on a specific topic. But what followers on Twitter want, what they have come to expect, is something more immediate, more casual, and more off-the-cuff.
In July, FINRA released the results of their inquiry into the matter of a California-registered representative with 1,400 Twitter followers. The rep had sent a series of messages first touting the profit potential in a specific stock and, after the stock had appreciated, boasting of her successful read of the opportunity. Besides lacking the normal disclaimers that accompany recommendations, the broker failed to mention that she personally held big positions in the investments she was recommending. The broker was fined $10,000 and had her license suspended for a year.
For regulatory purposes Twitter messages are usually considered an “advertisement” and, as with all advertisements, 1) a registered principal for the firm must approve the content and 2) a copy of the advertisement must be maintained for three years. Both of these requirements are problematic with Twitter messages (although vendors are offering a solution to the record-keeping problem.)
In the short term, banks, securities firms and investment advisers looking to remain compliant with current securities regulations will be hard pressed to avoid potential problems when trusting large sales staffs with individual unsupervised Twitter accounts. The message to financial institutions is clear – careful what you tweet for.
Richard Magrann-Wells is a senior vice president and the financial services consulting practice leader for Willis North America.
Some things are inherently dangerous in the wrong hands. You don’t give scissors to babies; you don’t give three-alarm chili to your aunt from Minnesota, and you never, never, give Twitter accounts to stockbrokers.
Ignoring this guidance, one major securities dealer recently announced that it will do limited testing, allowing a small portion of its sales force to use Twitter’s messaging service. To date most major firms have resisted the siren song of social media. While financial institutions often like to be perceived as bringing their customers cutting-edge technology, they have been reluctant to give individual investment advisers access to Twitter for one simple and valid reason. If you give thousands of commission-based sales people access to broadcast media, someone is bound to say something stupid.
The financial industry and its regulators are facing a defining moment in the development of technology in their market. Twitter has the First Amendment and the seemingly unstoppable march of technology on its side. Opposing this onslaught is the core essence of the U.S. securities code – protect the investor by requiring adequate disclosure.
FINRA and the SEC have spent decades fine-tuning the necessary disclaimers that must accompany securities offerings – think “past performance is no indication of future performance.” Standard disclaimers for foreign exchange trading, for example, typically run 1400 characters, or 10 times the maximum limit for a “tweet.”
Undoubtedly, before allowing brokers and sales staff to start tweeting, they will be given instructions and hefty compliance manuals outlining the dos and don’ts of compliant tweeting. But we all understand that this new age of social media is different.
When our securities codes were written, sales were done with a visit, a phone call or carefully crafted letter. Over time, brochures and advertisements became more commonplace. It was only with the personal computer and the ability to self-publish, combined with the distribution capabilities of email, that things really started to change.
Investment advisers routinely reach dozens, even hundreds, of customers with the touch of a “send” button. But with all of the risks associated with the current methods of corporate communication, there is at least a modicum of reflection that takes place.
Twitter was designed to be different. It was designed to be personal. It was designed to be spontaneous.
The hope is that investment advisers will use this new electronic megaphone to alert followers that their firm is having a seminar or that they can go to the company website and find more information on a specific topic. But what followers on Twitter want, what they have come to expect, is something more immediate, more casual, and more off-the-cuff.
In July, FINRA released the results of their inquiry into the matter of a California-registered representative with 1,400 Twitter followers. The rep had sent a series of messages first touting the profit potential in a specific stock and, after the stock had appreciated, boasting of her successful read of the opportunity. Besides lacking the normal disclaimers that accompany recommendations, the broker failed to mention that she personally held big positions in the investments she was recommending. The broker was fined $10,000 and had her license suspended for a year. LINK
For regulatory purposes Twitter messages are usually considered an “advertisement” and, as with all advertisements, 1) a registered principal for the firm must approve the content and 2) a copy of the advertisement must be maintained for three years. Both of these requirements are problematic with Twitter messages (although vendors are offering a solution to the record-keeping problem.)
In the short term, banks, securities firms and investment advisers looking to remain compliant with current securities regulations will be hard pressed to avoid potential problems when trusting large sales staffs with individual unsupervised Twitter accounts. The message to financial institutions is clear – careful what you tweet for.
Richard Magrann-Wells is a senior vice president and the financial services practice leader for Willis North America.
