Topic A at the recent Securities Industry and Financial Markets Association Annual Meeting (SIFMA) was what to do about the fastest-growing communications phenomenon since the invention of the Internet: the explosion in social networking.

Whenever compliance and communications come together there is sure to be a tussle and this meeting was no different. Chairman and CEO Rick Ketchum cited the current policy as "currently constructed, these sites would not permit you to easily supervise these communications. For that reason, most firms prohibit their employees from using these sites for their business."

Still, trying to hold back the social media communications tsunami is not likely to last. The cost of not communicating to advisors and clients through their preferred vehicles does not make a lot of long-term business sense.

Mr. Ketchum readily admits that holding back the tide is not an answer either, "Nevertheless, interest in these sites will not go unabated."

Unfortunately, the way forward so far from the FINRA perspective seems blustery at best, characterized by ill-informed awareness of archiving technology, fact-free assumptions about user demographics, a confounding secretiveness not appropriate to an industry hammered for lack of transparency, and a rather limp offering of notice instead of real rules.

• The archiving technology is already here to be fully compliant. According to Mr. Ketchum, "We continue to witness the advent of technologies that will challenge your (distributors') ability to ensure compliance with regulatory requirements. For example, as currently designed they may not allow you to archive and maintain the communications on your own books and records." Pat Allen of AdvisorTweets, points out that the independent advisors she tracks for her blog are archiving and maintaining their records scrupulously. I uncovered several solutions; including Lifestream Backup, now being branded as "Backupify", available for $4.95 per month. Instant messenger FaceTime released a secure portal for enterprises seeking to monitor employee content posted to blogs, wikis, webmail and social networking sites such as Twitter, Facebook and YouTube.
• Social media is not just for kids anymore In a line that is darn near close to a call to "grow up," Mr. Ketchum said, "Many registered representatives, particularly younger ones, want to use social networking sites to communicate with friends and potential customers." By conflating friends and customers, Mr. Ketchum draws an inference that somehow social media and irresponsible behavior go hand in hand. Also, it completely overlooks the more seasoned professionals who make use of the new technology tools.
• Why does FINRA put social media policy behind locked doors? An even more baffling turn came out of the meeting with the announcement of a secret committee to review policy and propose change. "We have formed a Social Networking Task Force comprised of industry participants to explore how regulation can embrace technological advancements in ways that improve the flow of information between firms and their customers-without compromising investor protection," Mr. Ketchum said. In particular, the group is consulting with FINRA officials on real-life queries, such as how frequently firms have to monitor third-party postings on their own blogs, and how much liability they bear for manipulative or fraudulent postings from the public. Other topics, such as how to capture social networking communications, also are being discussed. When asked who was on the committee, Thomas Pappas, vice president of advertising declined to name the firms involved in the taskforce, but said they include brokerages with independent sales forces that want to use networking sites to advertise their services.
• All this for just a notice? At the conclusion of the meeting, Mr. Pappas said he did not expect the self-regulatory organization to release rules on the issue. "I think we can probably get where we need with a notice," he said. A notice without real regulations behind it is sure to punt the social media question further down the road and embroil compliance officers and marketers in endless hours of discussion and compromise.

It is well documented: time spent on mutual fund websites is diminishing.  This might be a clue that shareholders are tired of being communicated "to" by a no longer preferred communication tool. Why not listen to the shareholder and ask them about their communications preferences? Handled properly the correct solution would allow for the needed transparency that FINRA advocates in word, but oddly enough, undermines in deed with this lackluster, secretive and uninformed approach to one of money management's most important issues.

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