Advisors jumping onto Threads could create compliance headaches

Financial advisors are jumping onto Threads, but the new social media app from Meta Platforms Inc. could create a new set of compliance headaches for the wealth management industry.

The micro-blogging service launched Thursday as a direct competitor to Twitter and has already surpassed 70 million registrations, Meta CEO Mark Zuckerberg said on Threads. Threads dethroned ChatGPT, the chatbot from OpenAI, as the most rapidly downloaded app ever, according to the New York Times, and is already facing legal retaliation from Twitter.

Some wealth management firms have joined early to secure their corporate brand name on the platform, such as Morgan Stanley's ETrade, asset management firm Potomac Fund Management, and registered investment advisor Pearl Financial Planning. Others are more active, especially popular financial Twitter personalities like Douglas Boneparth, president of Bone Fide Wealth, and Tyrone Ross, CEO and co-founder of Turnqey Labs. Even Josh Brown — the CEO of Ritholtz Wealth Management, who was perhaps the most popular wealth management personality on Twitter before drastically reducing his usage — seems to have come out of posting retirement to actively engage on Threads.

Others are just hoping to find a replacement to Twitter, which has seen nearly constant change under the leadership of billionaire Elon Musk, including recent changes to Tweetdeck, which many advisors use to make the site more useful for work. George Papadopoulos,  a self-described Twitter power user and fee-only financial planner, is hoping Threads can make it because other alternatives, like Mastodon, BlueSky and Post, don’t cut it.

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“I joined Threads because Twitter is broken. Losing TweetDeck makes it almost impossible to continue using it as before,” Papadopoulos said in an email. “Threads has had an explosive start and may indeed be the Twitter killer (because of the Instagram base hook) but time will tell. The platform is still raw around the edges and I am not sure if the current hype can be sustained.”

Currently, Threads is what folks in technology call a “minimum viable product" and lacks many of the features that are standard on other social media platforms, such as direct messaging and feed curation.

The “rawness” of Threads also means digital archiving companies, which advisors use to remain compliant on social media, haven’t had a chance to work with the new company. Hearsay Systems, an archiving technology popular among RIAs, declined to comment because Threads is still so new. Competitors Smarsh and XY Archiving did not respond to a request for comment.

Given regulators' recent focus on "off-channel" communications, such as fines on big banks for failing to supervise brokers' use of messaging apps, compliance officers at broker-dealers and RIAs are "seriously concerned" with any and all social channels members of the organization are using, said Mitch Avnet, managing partner of Compliance Risk Concepts.

"Without having a handle on these types of communications, there is significant regulatory exposure, causing hypersensitivity to any [and] all use of electronic communications platforms without the appropriate infrastructure and oversight in place," Avnet said in an email. "Electronic Communications archiving vendors will need time to sort through this to ensure they can capture these communications and provide the required record retention capabilities to broker-dealers and investment advisors."

While Threads raises issues around advisor supervision and maintaining books and records, nothing about the app is any different from other social apps, said Max Schatzow, co-founder and partner of RIA Lawyers. Nothing is outright prohibited, but any content that could be considered advertising or marketing needs to be recorded, he said.

While advisors who have an existing social media presence should at least sign up for Threads to claim their username, Johnny Sandquist, founder and CEO of Three Crowns Copywriting and Marketing isn’t recommending firms he works with to jump in just yet.

“I imagine the trend to be similar to TikTok where you see personal finance experts dominating the discussion and then planners lag behind for a few years due to compliance concerns as that aspect all gets figured out,” Sandquist said in an email. “Most advisors are still trying to get a handle on YouTube and Instagram."

There’s also a chance that Threads could disappear as quickly as it rose, as previous social media fad Clubhouse did, Sandquist added. “Unless Threads iterates really quickly with some unique features, I can see it doing the same.”

For Avnet, the guidance is simple: "Do Not Enter."

"Do not utilize any 'off channel' social media platform until your firm has given you explicit approval to utilize such platform," he said.

Advisors can use Threads for personal reasons without receiving approval from their firm, Schatzow said. They just have avoid any communications that relate to investment recommendations or advice; delivery of funds or securities; the placement of a trade or order; or advertising performance.

“Make sure you’re not doing anything that runs afoul of your compliance policy and procedures,” Schatzow said. “If you do have a plan to use this as a business-generating source, make sure you’ve gotten the blessing from legal and compliance to do so.”

The good news for early adopters is that right now, Threads isn’t a very useful tool for business, said Cullen Roche, chief investment officer at Discipline Funds. Roche uses Twitter every day as a curated feed of specific topics for real-time news and opinions. This currently isn’t possible on Threads, which Roche called a “deal killer."

“All I do when I log into Threads right now is see mostly celebrity nonsense,” Roche said. “I don’t see how it's useful to have a screen on my computer where 75% of it is Kim Kardashian.”