Anyone tiptoeing around the idea of using social media to communicate with clients has run into the reality that its pros — speed, immediacy and reach — are matched by scary disadvantages like reputational risk, regulatory issues and the Internet’s ‘no going back’ technology.

As Peter Kahnert , senior vice president, corporate communications and marketing, Raymond James Ltd. in Toronto, puts it, online connections can be “very, very powerful. But if you do it in a wrong way you can do more damage to your own credibility and your own brand — instantly. You can’t recover. Once it’s out there, it lives forever.”

The best way to steer clear of these kinds of risks is to ensure you know whether your firm permits the use of social media, and, if so, what are the policies and procedures to be followed.

So far, most firms still seem to be taking a ‘wait and see attitude.’ But a few are moving forward and allowing their advisors to use sites like Facebook and Twitter when they are reaching out to clients. One of the first firms in Canada out of the digital gate was Macquarie Private Wealth Inc., which started creating social media policy for it’s advisors last year (see Investment Executive, May 2011, “Firms move ahead on social media”). Other firms are also dipping into the social media waters and creating their own social media policies.

Raymond James, for instance, is one firm that is in the lead on social media. The firm is now in the middle of a beta-test program for their social media policy, with the participation of eight of their advisors. The three-month program includes: training on the use of social media; a system that records of social media activity; and a compliance review of that activity. At the end of the program, and after any wrinkles have been worked out, all Raymond James advisors will have access to social media, Kahnert says.

Toronto-based Assante Wealth Management (Canada) Ltd. first issued a policy last year and currently has 14 advisors who use social media. Among other measures, the firm sent social media guidelines to its advisors last year, says Joseph Bajic, chief compliance officer and vice president, compliance. They specify what type of activity does or does not require pre-approval from the firm’s compliance department, and what is completely prohibited. Sites that are permitted include LinkedIn, Facebook, Twitter, YouTube and blogs.

Assante mostly uses a pre-approval process, an approach that has been suggested by regulators. Communications that fall into the categories of sales or marketing must be pre-approved by the firm’s compliance department before they are sent out, says Bajic. However, advisors don’t require pre-approval to post an update to alert their clients about basic matters, such as an upcoming vacation or to manage or add contacts on LinkedIn.

Raymond James also requires advisors to seek pre-approval for their communications via social media. However, the firm has tried to streamline the process with the help of a third party. It has hired Belmont, Calif.-based Actiance Inc. to automatically capture an advisor’s online activity and send it to the firm’s compliance department for approval. As well, Actiance will archive all communications conducted by advisors via social media, which will help Raymond James stay within regulatory requirements. The firm allows advisors to use LinkedIn, Facebook, Twitter and blogs.

But before Raymond James advisors start sending Tweets, pressing “Like” or adding connections, they must complete a training webinar. The 80-minute webinar is broken into different segments that deal with various social media platforms. For example, one section focuses on Facebook, while another addresses LinkedIn.

“The main point of this whole project,” says Patrizia Aragona, a Toronto-based marketing manager with Raymond James, “is to ensure that our advisors are aware of what another business tool might be for them.”

Each section of the webinar explains the regulatory requirements, Aragona says, and what advisors can do to develop their online business profile. It also explains how an online profile might differ from a personal profile.

Assante also provides training to their advisors before they start using social media. The firm is looking for optimum ways to work with advisors to help them use social media, says Bajic; it currently provides in-house training and professional development sessions. It also has a session devoted to social media planned for an upcoming national conference for company employees.

Bajic says: “Our branch audit group and advisor training as well as our marketing department provide good guidance to our advisors.”

Of course, those advisors who depart from that guidance, whether they are with Assante or Raymond James, will have to deal with the consequences. Kahnert says Raymond James does have an overall policy and enforcement plan under which an advisor can be subject to disciplinary action, depending on the severity of the infraction. That can include suspension or dismissal.

The current policies and procedures of both firms are meant to avoid such problems, while staying adaptable enough to respond to the changing needs of the investment advisory industry and Internet technology. “A lot of the policies we put in place are built with plasticine, not concrete,” says Kahnert. “What we’re trying to do is put in a very strong foundation to build on whatever direction social media takes.”