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A Few Comments About the Securities Industry and Linkedin

Posted by Martin Brossman on 02/28/2009

A Few Comments About the Securities Industry and LinkedIn as well as Social Media. If you know of other free resources related to this topic please share them by posting a reply or sending me a email ( Martin@CoachingSupport.com ). These post came from a question I asked on LinkedIn about the resistance in the Securities Industry to LinkedIn and Social Media. This seems to be a challenge, because this is an important place where the future customers will be found. Many people in the Securities Industry are getting more pressure to gain more clients but then told not to use social media and LinkedIn, a key way to build future relationships.

The key comments:

From: Jay Izso – http://www.linkedin.com/in/internetdoctor
While I agree that the securities industry is handcuffed by compliance departments I have come to understand why. If we take anything from the Bernie Madoff case, we can see that people are not what they profess to be. True this destroys it for those people who are reputable and perform their job with integrity, however, it only takes a one bad apple to spoil the entire bunch.
Furthermore, I have come to understand that these companies are almost completely responsible for not just their employees person, but what they say or do that might be connected to the financial industry. If they give one piece of advice that it is not in agreement with company policy and a person takes that advice through a social media site, while the advisor may be in serious trouble, the company may face consequences as well.
I don’t see the compliance companies letting up on this. As a matter of fact my guess is as a result of all the financial backlash, things may get even tighter in some companies.
So what is the answer: Online Marketing evangelists. Since, these securities and financial people are limited in their promotion there is nothing wrong, at least from what I can tell, if non-compensated clients, friends, or family voluntarily solicit on behalf of these advisors.
For instance, I use Bob Watral with Smith-Barney in Raleigh, NC. I have been extremely happy with his dedication to my small amount of money, his consistency, and integrity. I also have endorsed him on my linked in profile.
I have no problem being an evangelist for Bob. I get nothing from it. I just know he does a great job and I want to tell others.
If people can get a hold of the concept of “marketing evangelists” regardless of the compliance issues they still can get a great business moving through social media.

From: Frank Williams http://www.linkedin.com/in/flwilliams
I am probably a rare breed in that I am a PR professional who held a Series 6 securities license in a previous life.
Let’s look at this from a PR angle, through the securities industry’s eyes. Imagine for a moment that you are in executive management at a firm which offers securities. Imagine that one of your brokers/agents engages in a seemingly innocuous discussion on a social networking site, but someone construes that discussion as giving financial advice and makes a trade or purchase based on that information — and then that trade/purchase results in money down the drain. This could result in negative PR and, potentially, a legal problem for your company, something which you want to avoid at all costs.
A big part of the securities industry’s resistance to social media likely results from the number of lawsuits filed (many of them likely frivolous) against securities companies. My guess is that they will eventually open up (to a degree, at least) to social networking, but only after they have plenty of internal safeguards and a great deal of training in place for their agents/brokers.

From: David Bass http://www.linkedin.com/in/davidbassrdu
I don’t want to make any excuses for the compliance staff, but it does help to understand the regulatory framework a bit.
Every securities firm must develop a set of “Written Supervisory Procedures” (or “WSPs”) that are satisfactory to FINRA, and then follow them. The WSP’s establish a supervisory framework and establish procedures to ensure compliance with laws governing advertising and sales literature, background checking and registration for new personnel, review of correspondence, handling customer complaints, privacy, handling transactions, and all the other things that go along with handling funds or securities belonging to others (i.e., customers). (I’ve written an entire set of WSPs from scratch, ultimately to the satisfaction of FINRA regulators. It’s a beastly task!)
One of the biggest “gotcha” areas that has led to fines imposed on securities firms is the review of correspondence. The regulations basically require firms to supervise all incoming and outgoing correspondence related to conduct of the firms’ securities business. The review is to ensure correspondence complies with FINRA Conduct Rules regarding standards of commercial honor and just and equitable principles of trade (Rule 2110), the absence of manipulative, deceptive or other fraudulent devices or contrivances (Rule 2120), content standards (Rule 2210(d)), and to identify customer complaints. Then all of this correspondence needs to be saved, maintained and archived.
So what is the DEFINITION OF “CORRESPONDENCE”? This includes all written and electronic correspondence. Letters, faxes, email, text messages, instant message programs, and anything else that can be read (as opposed to listened to) is considered correspondence.
The compliance staff fears that which they cannot review. LinkedIn In-Mail messages are a problem if used for business purposes by securities professionals. The incoming In-Mail shows up in my email In-Box. No problem here – it goes through the server where a copy can be captured, reviewed and archived. BUT WHERE IS THE OUTGOING IN-MAIL? Hmmm… not on the securities firm’s server!
Some of the best features of social media are also the most frustrating for the securities industry. IM, text messaging, in-mail, Twitter, etc. are really more like voice converted to text and less like traditional correspondence. If the securities industry compliance staff AND FINRA AND the SEC and Congress can all agree on this and modify the regulations to accomodate communications of this nature (by redefining them as extensions of voice, rather than extensions of writing), then the industry professionals who are social media-savvy can emerge as winners. Until then, we’ll continue to be frustrated.

From: Doug Cornelius http://www.linkedin.com/in/dougcornelius
Advertising and correspondence are tightly controlled in the securities industry. Those limitations are in place to protect investors from shady securities dealers.
One of the problems is getting social media messages into a repository where they can be reviewed and stored. For some social media platforms, you can do this. The closed platforms are a problems. For example, on Twitter, it would be easy enough to pull a persons tweets in through an RSS feed for review and storage. Similarly, blog posts could be as well.
The key, as you point out, is transparency. We need to know what the dealers are saying about the securities. The transparency protects the investor.
As for LinkedIn Answers, if I could subscribe to an RSS feed for all of your answers then it would not be a problem. But since I can’t, it is not transparent.
Much of the problem lies with the underlying social Internet platforms and not the compliance regulations. They are purposefully closed and do not allow information to go outside the platforms. The platforms are not transparent.

Share your comments and you can see the original question at:
http://www.linkedin.com/answers/finance-accounting/financial-regulation/FIN_FRG/411279-548650

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