Social networking? Everyone's doing it. Particularly your next generation of fund customers. You will want to reach them, as they walk and talk through the Internet.

Facebook famously passed 500 million active users, worldwide, in July 2010. Twitter at the time had more than 105 million, although eMarketer estimates the number of active users each month at 26 million. Linked-In, the network of career professionals, had 70 million users.

And even the head of the Financial Industry Regulatory Authority, which issued guidelines in January 2010 on how to properly use these online sources of interactive experiences for business purposes, said you can't stick your head in the sand.

Many brokers, who market funds to their clients, "prohibit their reps from using it now," FINRA Chairman and Chief Executive Richard Ketchum said in an interview with CNBC. "But you know the reality is that's how everybody communicates. What you've got to do is get the information, not prohibit it."

The Securities and Exchange Commission has not issued a set of rules or guidelines about social networking, leaving the Investment Advisers Act of 1940, which governs advertising, to speak for it.

Facebook updates, tweets on Twitter and messages on LinkedIn may seem like just another form of e-mail. But social networking "is just a lot more complicated" than the forms of electronic communication that have gone before it, said Chad Bockius, chief executive of Socialware, in Austin, Texas. His firm is a supplier of software that helps companies establish and enforce their own policies regarding the use of social networks in their organizations.

It's not enough, with communications on social networks, to have a written policy about the right way to user them, to supervise company posts and then archive the results, Bockius notes. There are, quite simply, some features of social networks that have to be disabled, blocked or managed.

For instance, no one inside a fund firm or a broker-dealer should be allowed, technically, to "favorite" a tweet that comes in to its site or "like" a Facebook comment. That would be considered an endorsement, which firms should not be randomly making in public, in Bockius' book.

"You cannot control how Facebook behaves,'' he said, "and you cannot control the average Facebook user,'' but you can control how your company's representatives and employees behave in public. At least on company-owned machines.


Common to pretty much all social networks is the presentation of a personal profile. Whether on LinkedIn or on Facebook, these do not change very often. As such, they are fairly easy to control.

All profiles should be vetted, before posting, to make sure their contents can't be construed as making unverifiable claims or unauthorized recommendations. Then, they can be locked down, with software like that developed by Socialware. FINRA also requires this content to be pre-approved by a registered principal, because it is considered an advertisement.

Changes to profiles would require updating by an administrator, after pre-review of the new text. Or, pre-approval of text written by and to be input by reps themselves.


If you've authorized an employee or a rep to tweet for the company, then it'll be almost invariably necessary to screen the messages, before they go out.

This does not have to necessarily kill the speed or spontaneity of communication. The trick is to filter the messages for potentially awkward or liability-inducing statements. These, Bockius notes, can include phrases like "stock recommendation," "return," "performance,'' "earnings" or even stock symbols.

It depends on how tight you want to maintain control.

It is not technically feasible to screen incoming messages to a Facebook page, Twitter page or LinkedIn account. The most you can do, Bockius said, is disable third-party commenting. But FINRA will not hold firms liable for incoming comments as long as a firm does not explicitly endorse a particular comment.

Building a Checklist

The biggest challenge is to understand all the features of all the sites in which your firm intends to try and build an online interactive experience-a social connection-with present or future customers.

If you were to chart it, you can see how Socialware's system works on enforcing policies on a LinkedIn page.

Red boxes appear on the site to indicate features that could cause problems-and that can be blocked, if so desired, by using software like that developed by Socialware.

Even the InBox can be blocked, to make sure that the rep does not get involved in ongoing exchanges that could be construed as giving advice.

Also highlighted are features that allow normal LinkedIn members to view and edit their profiles and to make recommendations about the qualifications of other LinkedIn members to which they are linked.

In some cases, a company will want to block the editing of the profile, leaving that to an administrator. And recommendations also would be blocked-even incoming recommendations. But companies also can pre-approve changes to the profiles and let the reps execute the changes.

To deal with thise, policies can be set to allow or block invitations and other activities that are built-in for the professional networking site's users.


All of which might not seem so social. But mutual funds and asset managers are not, by law, allowed as much freedom in how they express themselves as other kinds of firms or, for certain, individuals acting on their own.

Still, you don't want to "solve" the problem by just avoiding sites where people do go to find out who you are, what you do and what your level of skill is. On LinkedIn, for instance, a user looking for a broker or a financial planner or a financial adviser will come upon a profile that looks interesting-and not call directly, as a result.

Instead, by the nature of LinkedIn, the likely result is the person will see who he or she knows that knows this adviser-and seek their comments before contacting the adviser. If the adviser is not part of the network, the call never comes.

"The value of a social network is the network,'' said Bockius, "and how large it can get.

Getting involved gets you greater reach (more potential customers) and deeper engagement (even if much of it ends up offline).

The trick is managing the expectations - and the networks.

In its case, Socialware system builds and maintains an ongoing list of all features of a social network. The user then gets to decide what to archive, what to pre-review, what to post-review, what to allow and what to block (second chart, upper right). Even as features change.


FINRA Social Networking Guidelines

Investment Advisers Act of 1940

Investment Company Act of 1940 (as amended July 1)

Socialware Research, Best Practices & Policies