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News October 3, 2011 Issue

Technology for Tackling Social Media Compliance

The vendors are out there, itís your job to find the right one for your firm.

Random sampling and "checking in" on employee social media pages wonít cut it for monitoring compliance with your social media policies and procedures. Whatís a beleaguered CCO to do?

There is a Ďprice of admissioní for social media usage, and it is an investment in surveillance technology, said Morris, Manning & Martin partner Margaret Paradis.

"Ten years ago, we saw the same issue with emails," said Penniall & Associates COO Craig Watanabe. Business communications in emails were banned initially, or a physical printout of the email had to be put in a correspondence file, he said. Eventually technology caught up, and now business emails and email surveillance are part of everyday life.

Social media is already part of everyday life, and is increasingly being embraced by the business community. One way firms can get more comfortable with the presence of social media in their business environment is having a sense of confidence that an appropriate level of monitoring is taking place.

Two years ago social media surveillance technology was just developing. Now an adviser can find any number of vendors of social media surveillance technology to choose from.

The surveillance technology operates typically in one of two ways, said Watanabe. It is either an application program interface (API), or a browser applet ("proxy") approach.

APIs hardwire into the userís account and monitor activity at the source, whatever device is used to access the account. If a user disables the connection, an alert is forwarded to the client.

Browser applets are uploaded on each device used to connect to social media. The applet runs in the background until the user enters a monitored site, and then the applet is activated and begins monitoring activity and capturing and transmitting data.

The API approach appears to be the dominant technology among the largest social media surveillance vendors. Arkovi, Erado, and SunGardís Protegent Social Media Surveillance each use an API approach. Socialware, one of the first providers of social media surveillance technology along with Arkovi, uses a hybrid approach incorporating both API-based and proxy-based technologies.

An important distinction with social media over email, is that social media works everywhere, said Arkovi CEO Blane Warrene. Email must be configured to appear in various locations, but every electronic media device in the world is pre-built and pre-packaged with access to social media.

"Itís not about the bad apples, itís about consistency in archiving," he said. Surveillance at the source is important because what if someone uses their brotherís iPad, for example, to access their account? "It might be a clean, approved post, but if the RIA doesnít know about it, theyíre in trouble."

The technology is "social network agnostic," said SunGard vice president of business integration Suman Garhwal. Any social media site that permits an interface with the technology can be surveilled.

Morgan Stanley Smith Barney (MSSB), the largest retail broker in the U.S., made headlines when it openly embraced support for social media communications early this summer. At the time, Reuters obtained an internal memo from MSSB head of U.S. wealth management Andy Saperstein that said "[t]he emergence of social media has changed the way in which people communicate with each other and companies interact with clients." Saperstein attributed the companyís move to addressing those changes.

MSSB does not permit unfettered use of social media, and prohibits giving or receiving recommendations on LinkedIn, for example, to avoid the issue of testimonials. MSSB initially permitted only a limited number of brokers to participate in monitored social media activity during a test period, but expects all of its registered representatives to have nearly full access to LinkedIn and at least limited access to Twitter by the end of the year.

Though MSSBís move was labeled in the blogosphere as a "toe-dipping exercise," other prominent wealth managers such as UBS Wealth Management Americas, Wells Fargo Advisors, and Merrill Lynch reportedly have been exploring business-related social media use as well.

In July, Advisor Group also made the news when it announced it would permit greater use of social media. Art Metzger, vice president of advertising supervision at Advisor Group, said, "[w]hether administrative related posts, securities related tweets, or marketing and communications messages, we will train advisors on how to leverage social media and better market themselves to clients and prospects. [The use of appropriate surveillance technology] allows our advisors to seamlessly make social media marketing a part of their daily routine, without sacrificing the time they need to be spending on other client-facing activities."

FINRAís January 2010 guidance on social media indicated that information on social media sites should be treated as sales literature.

Implementing social media policies and procedures and a surveillance program, even with the help of a vendor, can be a daunting task.

CCOs must determine such threshold issues as:

  • Who should get access to social media usage for business purposes;
  • How should they be permitted to access social media sites;
  • Which sites are being used and which will be permitted or prohibited;
  • What business-related conversations should and should not occur;
  • What disclosures or disclaimers will be required;
  • Which features of the media will be disabled or prohibited; and
  • How to handle communications with personal/professional overlap.

Considerations in vendor selection can include:

  • Options for manipulating data once captured;
  • Whether meta-data attaches to captured content;
  • The back-up and security controls of the product;
  • How surveillance results are delivered, and whether that can be customized to your business; and
  • Cost.

The costs of surveillance technology are not prohibitive, said Watanabe. He ball-parked the expense at an average of about $15 per account per month. Of course, vendors will vary and larger firms may see economies of scale while smaller firms may pay a premium.

One thing is certain however, choice is now abundant for this necessary tool. Two years ago, advisers had no guidance, and no options for the surveillance necessary to ensure compliance. Now they have both.