National Planning Holdings, Inc., one of the nation’s larger independent broker-dealer networks, announced this week it has contracted with business technology firm Erado to supply its more than 3,500 affiliated representatives with compliance services for social media applications.
Many financial advisors are using social media and networking sites such as LinkedIn, Facebook and Twitter to help communicate with clients and market their services. But balancing the benefits of these easy-to-use forums for instantaneous interaction with regulatory agencies' requirements that firms and advisors be able to save and recover all communications with clients has proved to be a daunting challenge.
Meeting the strict communications and documentation rules established by FINRA and the Securities and Exchange Commission has created something of a niche market for Erado and other firms that have developed applications to document, save and monitor advisors' social media interactions.
Andy Silver, a spokesman for NPH, said that the Erado service, which will require a “minimal” subscription fee from advisors, will supply both software and monitoring by back-office staff. “All communications will be archived and will be retrievable,” under the Erado system, he said.
Silver said to use the new system advisors will first have to run a training module created by NPH so they will know both what the regulatory requirements and how the monitoring program works.
As an indication of the kinds of problems that can arise with social media use by advisors, FINRA earlier this month fined one California advisor $10,000 and suspended her from associating with any FINRA member for a year for sending clients what it called “unbalanced” tweets that were “overwhelmingly positive.”
NPH’s Silver said it is important for advisors to learn how to properly use the new social media. “FINRA rules on communications with clients apply whether you’re sending messages of 140 letters or 140 pages,” he said. In the case of Twitter, where the message limit is 140 letters, he warned, “The advice is, don’t try to discuss something like the debt ceiling!
“Clearly, social media has reached critical mass and is becoming an increasingly important communication tool for financial advisers,” said Jim Livingston, president and chief executive officer of National Planning Holdings. “However, managing the compliance implications of social media activity has been a challenge, and our relationship with Erado will help us address these issues head-on.
The plan is to have the Erado system up and running by this fall, Silver said, and available to advisors working for the four broker-dealers in the NPH network: INVEST Financial Corp., Investment Centers of America, Inc., National Planning Corp. and Sil Investments, Inc.