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The DOL Ruling: 3 Implications for the Advisor-Client Relationship

shutterstock_70550545The Department of Labor (DOL) has finally redefined who will be held to the “fiduciary standard” concerning retirement investing advice and how it’s applied. Yesterday’s long-awaited ruling—which requires registered investment advisors, brokers, and insurance agents (collectively “advisors”) to act in the best interest of their clients—has huge implications that will affect the advisor-client relationship for years to come. Here are three of them:

1. Advisors must learn all there is to know about their clients in order to better serve them

With the new ruling, it will become increasingly critical for advisors to discover all there is to know about their clients and put their clients’ need and wants front and center. Doing so will allow them to give better investment advice while upholding their fiduciary duty. This includes using “next-generation tools” such as social networks and digital aids to cultivate relationships and facilitate ongoing communication through the sharing of tailored content and thought leadership.
Additionally, advisors must provide differentiated value at low cost to better serve their clients in light of greater transparency into how they are being paid in fees and product commission. The greater value advisors provide, the better prepared they’ll be to recommend investments that are in their clients’ best interest.

2. Advisors must embrace technology in order to deepen relationships and increase productivity

Technology will play a big role in how advisors reach and engage with clients as well as boosting their day-to-day productivity. Hearsay Social CEO and founder Clara Shih has spoken about this many times before, including at a 2015 BlackRock leadership event focused on the future of wealth management. She discussed the need for advisors to deliver more value to clients amidst greater productivity pressures by stating:

“Advisors can only do this by embracing technologies that free their time to focus on the human, emotional aspects of helping coach clients through tough life decisions. Two of the most time-consuming aspects are asset allocation and business development. Overall, the consensus from the C-suite is that there are big opportunities for advisors to leverage automation and productivity tools to help them recapture some of that time.”

3. Firms must leverage technology that enable advisors to better attract, engage, and keep high-net-worth clients

To compete under the new rules, advisors will need to cast a wider net in order to attract and keep high-net-worth individuals (HNWIs). Millennials, in particular, which represent a growing group of HNWIs under the age of 40, offer significant opportunities for advisors. According to the 2015 World Wealth Report, these younger investors prefer to use mobile phones, tablets, and other mobile devices for nearly all their information, transactions, and interactions. By leveraging technology, firms can enable their advisors to attract and keep this sought-after segment.
There is no question that the new DOL rule will have a big impact on advisors who are currently managing 401(k) plans and advising on individual retirement accounts. As we dig deeper into the new ruling, we will continue to keep our customers abreast of how these changes will unfold.
One thing is certain: It’s more important than ever for advisors to leverage technology to learn all they can about their clients and share thoughtful recommendations across their clients’ and prospective clients’ preferred communication channels–both online and offline.
Above all else, the DOL ruling serves as a loud wake-up call for advisory firms to adjust their business models to meet the new fiduciary standard, and the extended grace period will allow firms ample time to do so.  
Be sure to follow @HearsaySocial for ongoing dialogue and insights around the DOL ruling.
For more information, check out the following news resources:

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Social media compliance: What investment advisors need to know

Ed. note: The following post, authored by Yasmin Zarabi  (vice president, legal & compliance, Hearsay Social), originally appeared in Financial Planning.

FinancialPlanning_logoAs social media grows increasingly popular among RIAs, there are still questions regarding testimonials, endorsements and recommendations on social sites. The SEC’s recent guidance allowed for certain use of third-party commentary on social media that would not violate the “testimonial rule.”

Here’s what investment advisors need to know now.

Underlying rule

Since the 1940s, the SEC has forbidden RIAs from promoting client endorsements or testimonials in anything that constitutes an “advertisement.” Rule 206(4)-1 under the SEC Investment Advisers Act of 1940 prohibits an RIA from publishing, circulating or distributing any advertisement which refers — directly or indirectly — to any testimonial of any kind concerning the RIA or any advice, analysis, report or other service rendered by the investment advisor.
But in the digital age, clients can effortlessly use social media to endorse and recommend their advisors with just a few clicks. The SEC has issued a couple of clarifications related to social media. Back in January 2012, it published a National Examination Risk Alert on Investment Adviser Use of Social Media, outlining its concerns about RIAs’ use of social media and describing how clients can provide recommendations and endorsements. More recently, in March 2014, the SEC issued Guidance No. 2014-4 — Guidance on the Testimonial Rule and Social Media — providing further clarity on investment’s advisors’ use of third party commentary on social media.
How could a third-party comment or social media “action” be viewed as a “testimonial” on social media and therefore prohibited? One thing is clear: In its guidance, the SEC says an investment advisor should not invite its clients to post commentary directly on the investment advisor’s own social media site or page.

But what uses of third-party commentary would be permissible by the testimonial rule?

mzl.hcndxsjsLinkedIn recommendations & endorsements

LinkedIn endorsements and independent recommendations about the advisor’s skills should be avoided. An endorsement can occur in two ways: A client could endorse an advisor for a skill that is already listed on his or her profile or a client could initiate an endorsement for a new skill that does not already appear on the advisor’s profile.
To avoid the first scenario, advisors should select “No” for the “I want to be endorsed” feature under the “Skills and Expertise” section on their LinkedIn profile to turn off the feature that allows clients (other LinkedIn users) to “endorse” their skills. In addition, if a connection attempts to add a new skill to the advisor’s profile, the advisor should reject the endorsement to avoid violating the testimonial rule under the Advisers Act.
Recommendations on LinkedIn are completely separate from endorsements. They are free-form written opinions of one’s professional skills, accomplishments or experience. A client can choose to recommend an advisor or an advisor could request such a recommendation.
If advisors receive unsolicited recommendations, they have the ability to review and approve the recommendation before it appears publicly on their profile. Advisors should not accept or request any recommendations on LinkedIn. Advisors may also want to add a preemptive note to the Summary section of their profiles to say up front that they will not accept recommendations or endorsements.


Advisors should avoid retweeting any tweet from either a securities research analyst or a client who is providing a testimonial about the advisor’s performance or a product or service of its firm.

LikeSocial media “likes”

Many firms also worry about the interpretation of a like on Facebook or LinkedIn, or having viewers choose to “favorite” a tweet. Likes can mean many things: For example, a like from a third party may simply indicate that a visitor enjoyed an article that was shared or appreciates the artwork on a page.
Much depends on context: The 2012 SEC Risk Alert was careful to state that interpretation of a like as a testimonial is based on the facts and circumstances. A like that an advisor solicits as an indication of a client’s experience with the firm may be construed as a testimonial. However, a like on a photo of an advisor’s new baby may not.

Links to third-party sites

The March 2014 SEC guidance also clarifies how advisors can use third-party commentary on social media. According to the guidance, advisors should not link to commentary on a third-party social media site unless they can demonstrate all three of these:

  • That the advisor has no ability to affect which public commentary is included or how the commentary is presented on the independent social media site.
  • That the commentator’s ability to comment is not restricted.
  • That all comments, both good and bad, can be viewed publicly.

Takeaway: rules for advisors

Financial regulations only prohibit the use of testimonials or endorsements that are related to financial services and the ability to manage money. But advisors can avoid violations of the testimonial rule by following these guidelines:

  • Do not list any skills on your LinkedIn profile.
  • Turn the LinkedIn endorsements feature off.
  • Do not accept any LinkedIn endorsements initiated by a third party.
  • Include a disclaimer on your LinkedIn profile instructing third parties not to endorse.
  • Only share links to independent third-party social media sites on which you have no influence on the third-party commentary and you are not materially entangled with the third-party social media site.
  • Do not cherry-pick favorable client testimonials or endorsements  on your social media pages or any advertisement. If you allow testimonials, you have to show the good and the bad commentary, and not just the favorable comments.

In general, advisors should avoid soliciting client feedback in a way that may frame a Facebook like or a third-party post as a testimonial.
And as a best practice to limit their risks, advisors should prominently display language on their LinkedIn and Facebook profiles indicating that they (and their firms) are not responsible for and do not encourage third parties to post anything on their behalf.
Given that the financial regulations relating to social media are relatively new, and social media platforms continue to evolve in their uses and the ability to effect controls, firms should consider the guidance in light of their organization’s policies for their advisors.

Disclaimer: The material available in this article is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of information provided herein.

Social media takes center stage at the SIFMA Compliance and Legal Society Regional Seminar

Broker-dealer and financial adviser usage of social media is taking off.
That was one of the key takeaways at the SIFMA Compliance and Legal Society Regional Seminar in San Francisco last Thursday, where compliance professionals from leading financial institutions and banks came together to discuss the hottest issues of the day.
During the “Regulatory Priorities” session, social media took center stage, as Daniel Sibears (SVP and Deputy, Member Regulation, FINRA) provided an update on FINRA’s social media sweep, or spot-check, of regulated Firms and their Registered Rep’s social media communications that kicked off in June. In this sweep, financial services firms were asked to fill out a questionnaire regarding their social media accounts, who manages those accounts, as well as information about the firm’s policies and processes.
The social media sweep is still being processed, but Sibears says the end result will likely be guidance on permissible social media practices instead of rules for enforcement.

Yasmin Zarabi (Sr. Director of Legal & Compliance) and Jesse Turcotte (Account Manager) representing Hearsay Social at the SIFMA Compliance and Legal Society Seminar in San Francisco.

While findings won’t be completed for a couple months, Sibears made one initial result very clear: social media is the way clients are and want to be communicating and it’s the way registered representatives and investment advisors want to be communicating with their clients. FINRA wants to make sure firms are investing in the right processes and systems to monitor activity, archive communications, and support compliant social media usage.
Thankfully, most firms that are allowing for their registered reps to be on social media are selecting to use enterprise platforms for social media, like Hearsay Social. We look forward to hearing the final results of the audit from FINRA.

Massachusetts state regulators weigh in on social media

As it turns out, federal securities regulators aren’t the only ones issuing guidelines on social media usage. Now states are getting in on the action.
After it surveyed the state’s 576 registered investment advisors, the Massachusetts Securities Division found that 44% of advisors use at least one social media site, like Facebook, LinkedIn, or Twitter. And yet, according to the Division, many of these social advisors are not ensuring that the proper recordkeeping and compliance procedures are in place.
Here are several key findings by the Division:

  • Yes, an investment advisor can use social media to discuss its business. However, advisors should be aware of new regulatory and compliance issues that can arise from the use of social media.
  • Social media matters to advisors because it opens up new paths of interaction and communication.
  • As a general rule, social media pages for advisors will be considered advertising. In turn, those social media pages are therefore subject to the same regulatory requirements as other forms of advertising.
  • Advisors are held accountable both for content they themselves create and (in some cases) content they either helped create (entanglement) or endorsed (adoption).
  • The Division agrees with the SEC in saying that a client “liking” an adviser’s Facebook page may in some instances, but not always, make it a testimonial. On LinkedIn, the problem is less sticky since advisors can simply choose not to accept client recommendations, once they have been trained that this violates regulations prohibiting testimonials in advertising.

Whether your advisors answer to federal or state regulations, Hearsay Social is the only provider of complete compliance and complete coverage on social media.
To learn more about these findings and others, read the Division’s letter here.