Despite the growing popularity of social media sites, only 14.9% of financial advisors in the U.S. say they use Twitter to communicate with clients or colleagues, according to a survey by InvestmentNews.

That may still too high, in the eyes of William Donegan, chief compliance officer at Scotia Securities Inc. He says the use of social media is generally unsuitable for the investment and security industry.

“Social media sites are probably not appropriate for the conduct of business; At least not the securities business because it’s hard to regulate what’s going on there,” said Donegan. “By its very nature it’s hard to control. We are under regulatory guidelines in terms of what investment business can be communicated within the sales and business context.”

The rules that Donegan speaks of are Mutual Funds Dealers Association rules 2.7 “Advertising and Sales Communications” and rule 2.8 “Client Communications”. Both rules state that any business or sales-related communication disseminated to the public must be reviewed and approved by the dealer.

Twitter posts on-going interactive dialogues that would make it time-consuming and far more challenging to dealer review.

“Where people are putting things on regularly and responding and getting into dialogue with people, that is harder to control,” Donegan explains. “You can’t control that and if someone is in a Twitter-like conversation with one or more people, that content basically cannot be controled if the discussion concerns investment and the investment business.”

Twitter was originally designed to allow users to answer a simple question: What are you doing? But it has proven to involve serious security and privacy issues.

This year there were a number of cases of high profile individuals who had there twitter accounts hacked into.

Hackers broke into the twitter accounts of President Barack Obama and Britney Spears. From the President’s account, which had not been used since the election, the hacker posted a fake survey on the President that offered the chance of winning $500 in free gas.

In addition there are risks with people spoofing other identities. As Twitter does not yet verify identities, users can claim to be anyone they want. In fact, people can set up an account under a company’s name. Recently, a twitter account falsely claimed to represent Bank of America.

Despite the privacy and security issues surrounding the use of Twitter, a few advisors do use it for personal and business purposes.

(09/16/09)