Wall Street banks clamor to underwrite stock for social media companies like LinkedIn and Twitter, but the online networking sites are largely off limits to the banks' financial advisers.
Now, the largest U.S. retail brokerage, Morgan Stanley Smith Barney, expects to be the first major wealth manager to allow its brokers to use Twitter.
Next month, a test group of 600 Morgan Stanley Smith Barney advisers will be allowed almost full use of LinkedIn, the professional networking site, and restricted use of Twitter, the micro-blogging service, according to an internal memo obtained by Reuters on Wednesday.
Within six months, the program will be expanded to the firm's entire force of 17,800 advisers.
The emergence of social media has changed the way in which people communicate with each other and companies interact with clients, Morgan Stanley Smith Barney U.S. wealth management boss Andy Saperstein said in the memo.
Communications by brokers, whether to clients or to the broader public, is closely monitored by regulators guarding against investment scams, false advertising and misleading advice. Old-fashioned media like telephone call recordings and emails are retained, archived and screened.
Yet brokerage firms grew anxious as hundreds of millions of people -- including their customers -- embraced Twitter, LinkedIn and Facebook as their preferred way of communicating with friends and getting information.
The Financial Industry Regulatory Authority last year established rules for limited social media use, but Wall Street has been slow to let brokers participate.
To comply with these rules, Morgan Stanley Smith Barney will install technology to capture and retain all communication on approved social networking sites, according to the memo.
The test group of advisers includes Morgan Stanley Smith Barney's elite Chairman's Club brokers and about 100 advisers who have been testing use of LinkedIn. The retail brokerage is a joint venture of Morgan Stanley and Citigroup Inc.
Morgan Stanley is not allowing full use of social media. The freewheeling nature of social networks -- letting users link to other websites, spread messages and images -- has made them wildly popular but a source of anxiety for brokerage compliance officials.
A Morgan Stanley spokesman said advisers will be permitted to use interactive features of LinkedIn but will not be allowed to recommend themselves or other financial advisers. They also cannot be recommended by others because of regulatory restraints on the use of testimonials.
Brokers will be allowed to distribute research and content, such as status updates and tweets, but again only those approved in advance by the firm, such as official company views on market outlook or specific events, the spokesman said.
Other wealth managers, including Bank of America Corp's Merrill Lynch, Wells Fargo Advisors and UBS Wealth Management Americas, have been wading in to the social media waters.
These rivals let advisers maintain LinkedIn profiles displaying contact details and biographies, but they do not allow them to build links to other profiles. LinkedIn had 102 million members at the end of March, mostly professionals who create profile pages with a photo and career information.
Social media has been regarded mostly with trepidation by brokerage firms because of FINRA's strict compliance guidelines, but social media can be an asset to existing clients and a vital way to reach potential clients, said Stacey Haefele, chief executive of marketing firm HNW.
Brokerage executives have been eager to incorporate these new media, as a way for graying ranks of advisers to communicate and attract a new generation of clients and prospects.
FINRA in January 2010 advised brokerage firms to treat information on social media sites as sales literature, meaning tweets, posts and other data must be captured and retained for at least three years. Static information, such as profiles and blogs, must be approved in advance , FINRA said.
Morgan Stanley, along with Bank of America Merrill Lynch and JPMorgan Chase & Co, were lead underwriters of LinkedIn Corp's blockbuster initial public offering last week.
(Reporting by Joseph A. Giannone; additional reporting by Helen Kearney; editing by John Wallace)