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In Our View: Social media trends and best practices among financial advisory firms

6 min read

Modern Money

Facebook’s recent public offering represented much more than just another hot technology IPO. The event was an important moment in a long list of milestones — from LinkedIn to Zynga to Yelp’s public offerings — over the last 12 months that signify an important shift in client behavior and validate social media as a business model.

Understanding the sea change caused by the combination of social media and mobile devices is critical to the future success of any financial advisor or firm. Today, over one billion people access social networks all around the world, sharing personal and career updates with their friends, colleagues, and even financial advisors, realtors, and insurance agents. Indeed, a growing percentage of these social network users are financial clients and prospects, and their changing preferences have profound implications on how advisors can best reach, engage, and build client relationships.

Given the rich set of personal information and relationship-building opportunities on social sites, it’s no wonder that 7 in 10 advisors today are already using social networks for business purposes, according to a May 2012 study by FTI Consulting and LinkedIn. While the majority of advisors acknowledged that their social media activities are not currently sanctioned (and indeed, are discouraged or blocked) by their firms, they also say that even the strictest of corporate compliance policies have not substantially deterred their usage of these sites. Most advisors access social networking sites from a home or mobile device, such as an iPad or smart phone.

Overall business use of social networks by financial advisers. Source: FTI Consulting and LinkedIn study Financial Advisors’ Use of Social Media Moves From Early Adoption to Mainstream (May 2012). Click on image to enlarge.

The reason for noncompliance is simple: Social networking technology makes advisers more productive. Most commonly, financial advisers are using social media for networking with professionals, improving one’s referral networking, building personal brand and cultivating prospect relationships.

How financial advisers are using social networking sites. Source: FTI Consulting and LinkedIn study Financial Advisors’ Use of Social Media Moves From Early Adoption to Mainstream (May 2012). Click on image to enlarge.

So how do firms enable their advisers to be successful on social networking sites while keeping up with Financial Industry Regulatory Authority and Securities and Exchange Commission regulation? Here are three important best practices.

1. Develop a sound social media compliance policy. Although regulatory guidelines and technology are continuously evolving, Wall Street firms increasingly have convened their legal and compliance teams to interpret FINRA 10-06 and 11-39. Many use technology platforms — full disclosure: Hearsay Social is one such platform — to provide pre-approval of static content, post-approval on dynamic content, real-time monitoring and remediation, as well as social media records retention per SEC Rules 17-a3 and 17-a4.

We live in an era of “bring your own device.” Ensure that the solution deployed provides compliance protection not only within the corporate network but also across home and mobile devices, and has workflow built in so that field supervisors do not get overburdened with social media approvals.

2. Invest in building the adviser’s and the firm’s brand. Social network profiles provide a rich canvas for brand building through the sharing of thought leadership, such as research reports on specific investment regions or asset classes, as well as personal updates that might reflect moral character, such as community and charitable causes with which a financial adviser is involved. Firms that empower their advisers with timely and relevant content can significantly bolster the firm’s and the adviser’s brand as clients’ trusted resource on financial matters.

Hearsay Social adviser-content library, typically populated by adviser marketing or the firm’s research division. Click on image to enlarge.

3. Develop and deepen client relationships. Finally, social network profiles and updates are a rich source of information from which financial advisers can develop and deepen relationships with existing, new and future clients. For example, many private clients share important “money in motion” life events on LinkedIn and Facebook, such as weddings, engagements, births and career changes. Even for institutional relationship managers, these personal milestones provide an ideal opportunity to build client rapport and connection. The ability for advisers to view mutual connections on social networking sites is also invaluable for client acquisition via referrals.

In fact, more than 3 in 5 financial advisers who have leveraged LinkedIn to cultivate prospects successfully gained clients as a result. Advisers are also deepening existing client relationships, with nearly a third having gained $1 million or more in net assets under management, while 12% have gained $5 million or more in the past 12 months. Ultimately, financial services is a relationship business and stands to benefit disproportionately from a relationship technology such as social networking sites.

In conclusion

We are still only scratching the surface of what’s possible with social media. More than half of advisers in the U.S. expect social media to play a significant role in their marketing in 2013, representing an 80% increase year over year. Although these trends are most pronounced in the mass-affluent segment, we are seeing client adoption across the board, even with ultra-high-net-worth individuals. Though wire houses tend to have stricter compliance policies when compared with registered investment advisers and broker-dealers, there is widespread adviser interest and usage of social networking sites irrespective of firm type.

Social networking sites are transformational for private client services, offering financial advisers opportunities to engage clients around timely conversations. LinkedIn and Facebook, in particular, help drive sales productivity by making it easy for advisers to share content as well as access client updates. In a few years, virtually all firms and advisers will be on social media, much like they are today online. Firms and advisers who invest now have the opportunity to become “fast followers” and establish a competitive advantage in expanding their client networks, loyalty and referrals. In fact, many would even argue that at this point, it’s no longer about competitive advantage so much as it is about attaining parity to stay competitive.

This post was submitted by Clara Shih (@clarashih), CEO of Hearsay Social, author of “The Facebook Era” and a member of Starbucks’ board of directors. She will also be participating in SIFMA’s Social Media Seminar June 20 in New York City. Alexandra Russell (@hearsaysocial), Esq., compliance officer of Hearsay Social; and Robert Ellis (@bankofamerica), consultant and former senior vice president of social enterprise technology at Bank of America Merrill Lynch.