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Absent an entire rewrite of arcane rules, managers in the financial industry have told me there are a few things regulators like FINRA could do to simplify investor protections.

For example, some have suggested moving to a more principles-based approach for rulemaking. Callison points out that the SEC employs this philosophy, which essentially lays out a rule and then leaves it up to the firms to outline the best course of supervision.

In comparison, FINRA's prescriptive approach to rulemaking lays out specific rules for firms to follow. It requires firms to know – and implement – a great deal: static versus interactive content on the Web; pre-approval versus post-approval of content; content standards such as fair and balanced, and no false or exaggerated content; no predictions . . . the list goes on.

And while users of social media are on their sites to absorb quick, digestible pieces of information, the necessity of disclosures surrounding most financial conversations makes having a social venue for those discussions a real problem.

So a regimen that sets goals and allows some flexibility for reaching them offers advisors some options for serving clients responsibly while staying within regulatory boundaries


The temptation among many advisors is to just stay on the sidelines while the regulatory issues surrounding social media work themselves out. You may well say to yourself, “Why not let others mess up their reputations? We'll get started later, when we're ready and the system has ironed out the kinks.”

The obvious problem with that approach is that it means sitting out a dynamic market and ceding leadership to others. It may sound obvious, but in order to learn how to manage social media, you have to use social media. But the bigger problem with staying on the side in this industry is that it's unnecessary. A firm has a defense when something goes awry as long as it has policies and procedures in place to address what regulators expect.

Hamacher likens it to a sexual harassment policy: If a company has established rules explicitly restricting inappropriate behaviors, it provides the firm with greater protection, except in the most egregious instances.

The problem, she points out, is that “there isn't that clear statement in the social media world.” That's precisely why the industry remains so confused.

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