RJ and Makay

The financial services industry has fallen behind in the race to reach customers through social media sites, such as Twitter and LinkedIn.  This is largely due to industry regulations and brokerage company rules. The U.S. Securities Exchange Commission, for example, says all broker stock recommendations must be “suitable” for individual clients by measure their risk tolerance, security holdings, income, net worth and investment objectives. This rule is generally broken by tweeting a stock pick or posting it on Facebook, per David Sobel, executive VP and compliance officer at Abel/Noser Corp., a firm that helps clients cut trading costs, and does permit its employees to network through LinkedIn.

Firms like Merrill Lynch & Co and TD Ameritrade have restrictions on all broker-to-investor interaction on social media site due to concerns about violating SEC or Financial Industry Regulatory Authority (FINRA) rules. Those who break the rules face possible fines or suspensions for communicating in a potentially misleading manner, FINRA says. Almost 5,000 brokerages are overseen by FINRA, which requires firms to supervise and store all broker-client exchanges, like emails, twitter posts and Facebook updates. The firms also must pass approval on most postings to Web sites.