We all know that Wall Street firms are often forward thinkers when it comes to product innovation and investment strategies. But it’s unlikely that even they could have predicted the ease with which client information would flow thanks to the widely-used social media applications available today.
However, the issue of who owns client information is far from new. In 2004, a few of the larger broker/dealers in the United States came together to commonly address the kinds of basic client information registered representatives were allowed to take with them when moving between signatory firms. Known as the “Protocol for Broker Recruiting,” here’s what it covers:
When Registered Representatives move from one firm to another and both firms are signatories to this protocol, they may take only the following account information: client name, address, phone number, email address, and account title of the client that they serviced while at the firm (“the Client Information”) and are prohibited from taking any other documents or information.
The idea is that the agreement — when properly executed by the departing employee and his or her new firm — reduces the likelihood of litigation by recognizing that departing employees are entitled to take limited client information to their new firms.
According to RIABiz, nearly 800 firms remain signatory firms of the agreement as of February 2012. The current list includes many advisory firms that are not directly affiliated with a broker.
The Blurred Lines of Social Media
Could this movement be driven by the expanding use of social media? Indeed, it is now commonplace for an investment professional to use a combination of social media platforms, such as Facebook, Twitter, and LinkedIn, to promote services and to network with clients and potential clients — not to mention that most of us also use social media to stay connected on a personal level.
What happens when those lines get blurred? While the investment firm may use social media to communicate and promote products to current and potential clients, employees of that firm may link with other industry professionals to hold broad-based discussions on breaking news or to arrange a side meeting while attending a conference. There also is the potential that we may become directly linked to our clients via social media channels.
So, when leaving an employer, this question inevitably arises: Are the individual’s social media profiles and connections personal or assets of the firm. Rules to address social media communications by investment advisers are being developed by regulators around the world. In the U.S., FINRA continues to refine its rules to provide social media guidance on communications that occur between firm representatives and clients, such as tweets and blog posts. There continues to be a need for clarity in terms of who owns an employee’s social media profile, and whether firms can prohibit someone from announcing a resignation via a social media platform when clients are likely contacts in that employee’s social network.
CFA Institute to Update Guidance
CFA Institute is paying close attention to the expanded use of social media, and how regulations and best practices are evolving throughout the industry. Concerns over possible misuse remain as these services — and the Internet in general — provide an increased degree of anonymity to those looking to defraud investors. Additionally, we are interested in how social media may affect the current member guidance in the CFA Institute Standards of Practice Handbook, particularly Standard IV(A): Duties to Employers—Loyalty, which discusses what a CFA Institute member may be allowed to take when leaving a firm.
The current guidance, last updated in 2010, highlights actions that may or may not align with operating in the interest of one’s employer. This includes misappropriation of client lists and not deleting files or information stored on home computers or cell phones. However, it does not address the level of information currently available through an individual’s social media network. Much has changed in two years.
As the volunteer Standards of Practice Council (SPC) reviews the Standards of Practice Handbook for the 11th edition, I am confident there will be significant discussions on incorporating guidance regarding the acceptable use of social media by investment managers. In the meantime, we want your input.