(Reuters) - As the securities industry finally warms up to using social media sites such as Facebook and LinkedIn, regulators are discovering that brokerages and investment advisers are off to a rocky start.

Some firms are making major missteps as they ramp up their presence on the sites, and many do not even have social networking policies. Or if they do, many have inadequate guidelines.

And while many brokerages and investment advisers were once reluctant to use social media for their work, a growing number find they cannot ignore the marketing opportunity. They are increasingly using social media sites to increase their presence among customers and to recruit new business from investors.

A recent survey by the Massachusetts Securities Division found that 44 percent of the state's investment advisers use at least one social media site. More are expected to use social media within the next year.

Social networking sites, however, have caused a great deal of angst for compliance departments at firms. Many compliance professionals have worried that using social media would expose their firms to scrutiny from regulators for, among other things, not saving copies of the messages sent through the sites.

But findings from industry regulators suggest that some firms are not taking that scrutiny as seriously as they once did, and brokerages that still prohibit social media use can be sloppy about making their policies known.

For example, the Financial Industry Regulatory Authority, the retail brokerage industry's self-funded regulator, asked questions about social media in more than 1,000 brokerage examinations since mid-2010. Not having a social media policy in place - even one prohibiting the use of social media - was the most common violation of industry regulations, according to Amy Sochard, director of advertising regulation at FINRA.

But simply adopting a policy does not guarantee a smooth examination, a periodic regulatory review for brokerages. Failing to enforce existing social media policies, whether through record keeping or the storage of electronic communications, was the second most common violation, Sochard said at a recent FINRA conference.

Similar problems are cropping up at registered investment advisers, which are regulated by the SEC and by state regulators.

HOW ONE FIRM FELL SHORT

A recent follow-up letter to a registered investment adviser examined by a state regulator gives clues about the scrutiny firms can expect as they ramp up social media communications.

In the letter, obtained by Reuters, the regulator said the investment adviser did not create and outline proper procedures for social media use and did not adequately train employees. Simple guidelines, however, such as what types of posts were allowed or not, did not exist.

The source who provided the letter to Reuters asked that neither the firm nor the state involved be identified.

The firm, whose employees often used LinkedIn and Facebook, also fell short by not checking up on their activities there, even though it hired an outside company to save messages employees sent through the sites. The regulator suggested mapping out a periodic review of those details.

Investment firms "are shooting themselves in the foot," said Scott Peterson, co-founder of Relay Station Social Media LLC, a Washington-based consultancy. "Social media is its own kind of animal" and requires a policy of its own, he said.

Regulators typically send so-called "exam deficiency" letters after examinations of both brokerages and investment advisers to outline compliance problems that a firm needs to correct.

Another issue for compliance professionals is crafting a clear policy to require prior approval of employees' posts to the site, or spelling out procedures for ensuring that employees are acting in the best interests of their clients, in the event employees post investment recommendations.

WHAT DOES 'LIKE' MEAN?

An ongoing struggle for advisers is uncertainty over whether investors who click the "like" button on an adviser's Facebook pages are effectively giving testimonials, or a positive endorsement about the adviser. Similar questions also apply to recommendations clients may write for an adviser on professional networking sites, such as LinkedIn.

Use of client testimonials about an adviser's investment skills is a heavily regulated area.

The practice is severely restricted for brokerages and not even permitted for registered investment advisers. Still, there is little clarity from regulators about whether they may construe a "like" as a "testimonial." The SEC, in guidance from examination results it published in February, mentioned the concern, but left the question open.

Firms that are already concerned about clients "liking" their advisers on Facebook may be even more jittery after seeing how that detail was addressed during the state examination.

The state regulator asked the adviser to provide an explanation about why it does not consider a "like" on Facebook to be considered a testimonial.

If the adviser cannot provide that explanation, it will have to disable the "like" button, according to the letter.

One state that is among the few that are more specific is Massachusetts. Guidance released by Massachusetts securities regulators in January concluded that clicking the "like" button on Facebook, without further client commentary, is not considered a testimonial.

But uncertainty over "liking" and more social media issues in other jurisdictions will eventually lead to additional input from regulators, said Paul Cox, chief executive of Business Compliance Partners, a San Diego-based compliance consulting firm.

"At the current volume of social media deficiencies discovered during examinations, creating new rules and issuing new guidance will be warranted and required in the future," Cox said.