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Iain Duke-Richardet

Stop the insanity! What financial services firms can learn from the GameStop frenzy

Accessing—and acting upon—financial advice seen on social media platforms is nothing new. But not until the recent trading frenzy around GameStop has this new reality come under sharp scrutiny. After retail investors on a Reddit discussion board drove an astronomical increase in stock value, GameStop stock is now sharply falling. The resulting volatility has led to a market valuation swing of over $30 billion for the company in just this year.

The potential for outsized risk and high-stakes consequences resulting from crowdsourced actions born on social media platforms has never been more apparent. And while the reputation risk for firms that must oversee advisors’ social media behavior has always been a concern, the legal risk is real as well.

To protect themselves and their advisors on social media, financial services firms can implement three key steps:

  1. Communicate a clear social media strategy for personnel. This should include how and what channels they can use, the content they can publish—including which original content or corporate-provided content they may modify—and what supervision process they need to undergo. Additionally, the policy should address firm expectations pertaining to the use of social media during non-business hours, any prohibited use-cases, and include the repercussions of not abiding by the policy.
  1. Employ automated supervision workflows to review advisor-created content prior to posting. This can be made more efficient by using a tool like Hearsay, which surfaces and remediates sensitive communications via an AI-powered alert system, so that supervisors can focus on high-risk violations. 
  1. Test adherence to the policy. In addition to having advisors attest to their understanding and adherence to the social media policy, firms should implement a program to test that social media usage aligns with the policy.

One takeaway from the past few weeks is that there continues to be a huge desire for financial advisors and their clients to connect and communicate using social media. At Hearsay, we saw a 24% increase in advisors actively using social media across our platform in 2020 vs. 2019. And a 2020 advisor survey by Putnam Investments found that 9 in 10 advisors say that not only has social media changed the nature of client relationships during the pandemic, but that this change is here to stay. Given the potential impact to an organization’s reputation and the viral nature of this medium, firms need to establish and secure proper guardrails in order to support and enhance the connections enabled by social media, while minimizing the risks.

Iain Duke-Richardet

Iain Duke-Richardet

As Compliance Strategy Principal, Iain is responsible for guiding Hearsay’s 100+ global financial firm customers around the ever-evolving regulatory landscape. Iain is actively engaged with Hearsay’s customers and product teams and is focused on addressing new complexities as a strategic advantage to firms’ digital client experience initiatives.

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