This story has been updated from an earlier version.
A new website is trying to cash in on the social networking craze and resolve some of the thorny regulatory questions that social networking sites raise for financial advisors.
LinkedFA, a free networking and client-relationship-management (CRM) website targeted specifically at financial advisors, their clients and recruiters, announced its launch on Tuesday. Investors and recruiters must be invited by a financial advisor to join the system. The service was actually rolled out a few weeks ago and CEO Brian Byrne says "thousands" of financial advisors have already joined, though he declined to provide a specific number.
“We have been very pleased with the response,” says Byrne. “There has been a real need in the community for financial advisors to use social networking tools but stay on the right side of regulators.” Byrne says his site resolves the two major issues interfering with advisors’ ability to use social networking effectively with clients: Advisors must keep records of all of their electronic communications with clients, and an electronic communication with more than 25 clients is considered advertising.
LinkedFA automatically stores all communication between financial professionals and investors relating to business for a minimum of six years, as required under the Securities Exchange Act 1934. These communications are extractable and reportable at any time. Further, to get around the 25 person limit, it allows a financial advisor to send messages or documents to "networks within the network," or limited groups of clients. These communications are not visible by others in their networks.
The service is meant to allow financial advisors to communicate easily with their clients in small groups, posting research reports, videos, pictures and blogs. Byrne intends to help advisors get referrals from existing clients as well. Rather than passing along a friend’s contact information directly to the financial advisor, the client can invite that friend to join the advisor’s network to check the advisor out first. While advisors who join the site can link to one another, each advisor’s clients and prospective clients are hidden from other advisors on the site to prevent poaching.
At least one recruiter who preferred to speak anonymously was skeptical about the site's ability to attract advisors and high net worth clients, or to compete with existing networking sites like LinkedIn, which has over 100,000 financial advisor members and dozens of members groups dedicated to the profession. Why would an investor use the site to check out a potential advisor when he could just look at that advisor’s web site or meet with him in person, he asked.
LinkedFA also allows advisors to set up three separate profiles: one for clients, one for other advisors, and one for recruiters. As with Facebook, privacy settings are a la carte. An advisor can choose to make his profile invisible to recruiters, if he prefers, for example. Eventually, compliance officers will also be able to join and monitor their advisors.
Marc Eisenshtat, a financial advisor with Northwestern Mutual on Long Island who serves high-net-worth investors and business owners, joined about a month ago, and says he thinks the site has a lot of potential. “I heard about it on some other sites, through some people in the industry that I’m friendly with," he says. "One of the cool parts about this site, is I could network with clients and people they know. It’s a cool kind of take on social networking that hasn’t been around yet. Which is the reason I took the time to sign up for yet another site.”
Eisenshtat, who is also on Facebook and LinkedIn, says 10 of his clients have joined so far. He hopes to use the site to share with clients changes in his practice, new developments related to products he can provide, changes in estate tax code and exemptions, press releases from his company, other opportunities his clients can take advantage of. “Instead of calling every one of our clients, I can post it on linkedFa and hopefully get a response from clients who are monitoring the site.”
He continues, “I have to speak to my compliance people about the extent to which I can participate in the site.”
LinkedFA is now trying to convince some of Wall Street’s biggest firms that they should sign their advisors up. “We are aggressively pursuing wirehouse firms,” says Byrne. Many of them currently use software from companies like Socialware and Facetime that blocks the use of websites like Facebook and LinkedIn. “We had one CIO of a very big firm say, ‘social media is like what email was ten years ago. It’s not going away.’” The firm has not yet signed up, however.
“We talked to one firm that requires every FA if they have a profile to friend the compliance officer. It’s like having your mom on your Facebook page. It’s really so you don’t use it for business. We think we have the solution. Keep Facebook for personal use.”
Final rules are still pending, but FINRA updated its guidance on the use of social networking websites in a January notice to members. In that notice, the regulator emphasized that records must be kept of any business communications made through such websites, that suitability requirements apply to all recommendations made through such websites, and that firms must supervise communications made through social networking websites.
Byrne was the CEO of a customer relationship management (CRM) software firm before he began working on this project 18 months ago. “I thought CRM mixed with social media would be a great tool,” he says. Right now the firm doesn’t charge for its service, and it doesn’t plan to. “We figure our model for making money is around advertising. The clients are high net worth and will be a very appealing demographic for advertisers. We have already got a lot of companies who want to advertise top FAs. We don’t yet have advertisers yet and we’re ok with that right now.”