As the owner of both a financial advisory firm and a software company, Greg Friedman could hardly be called a Luddite. But Friedman has no plans to tweet, link, like or friend anyone through his San Rafael, Ca.-based advisory practice Private Ocean — at least for now.

Yes, technology may rule his life — both through his customer relationship marketing company, Junxure, and the tech tools he uses to manage his investors' holdings. But where social media is concerned, Friedman says the only pressure he feels to join comes from fellow advisors.

“I don't have a single client asking for it,” says Friedman. “I do think the future will involve social media. But right now it seems to me more like a solution looking for a problem.”

Financial advisors who spend any time online are likely to find themselves tripping over social media sites or references to them. While many may have personal accounts on Facebook or LinkedIn, few have as yet crafted pages for their firms. Most point to the regulatory environment as the main dampener to higher adoption rates for advisors. But others note that users of social media are frankly unlikely to search out a lawyer, accountant or FA for their financial holdings just because a friend said they “like” their firm.

Worth It?

“I'm hard pressed to say it's critical to be on social media now given the way investors in the market today go about finding advisors,” says Ron Shevlin, senior analyst at the Aite Group. “The research we've done from a consumer perspective does not suggest that when they're evaluating new relationships for investment advice, that social media sites are critical in influencing their choices of providers.”

That's not to say that Shevlin hasn't seen reps use social media as a prospecting tool. In fact, 35 percent of advisors under the age of 40 do use at least one social media for their business, according to his report, “Financial Advisors' Use of Social Media,” published in December 2010. And of those, 36 percent say they've used social medium to reach new prospects.

But Shevlin says that relatively high adoption rate is more an indicator of the resourcefulness of some advisors, and their willingness to try every avenue to drive new business to their practice, than a sign that social media itself is particularly successful at attracting new financial advisory clients.

“In no way would I imply that the use of social media was the cause of that performance,” he says. “Instead, it points to the fact that the most aggressive advisors will use any tool they think will help them grow their business.”

This try-everything approach can work but only if an advisor has access to all the tools available. Many firms — enormous conglomerates and one-man shops alike — have locked down an advisor's ability to get on social media sites.

The majority of advisory firms have a Web presence in this digital era, with a percentage of those firms also pushing out online newsletters, or supporting blogs. But most, like Friedman, have drawn the line at building a Facebook page or opening a Twitter account. It's not that leaping into social media is difficult to do from a technical standpoint.

Rather, regulatory agencies have instilled caution in reps who are thinking about finding new customers or even engaging with current clients online. In fact, some 57 percent of Schwab's registered independent advisors (RIAs) stated that compliance and regulatory issues were the biggest challenge to adopting social media, according to a survey the firm released March 7.

“Everyone wants to have a Facebook page and use it to promote themselves for personal or business reasons,” says Amy Lynch, a former regulator with the Securities and Exchange Commission and the Financial Industry Regulatory Authority, and now president and founder of FrontLine Compliance, which provides compliance services to financial firms. “Linkedin is the number-one business networking site and that will continue, and Twitter allows you to get your message out the fastest way possible. I would imagine reps would like to use these. But the problem is, how does the firm supervise that activity? It becomes difficult on many levels.”

The SEC just added to that complexity by issuing a letter in February to a cadre of advisors asking how they're using social media. If reps weren't already hesitating before jumping into the social media waters, this latest missive from top regulators pulled many back from the edge even more. While the SEC is mum on whether it will issue more clarity on how to use social media, Lynch believes the regulator is more likely to take a different course.

“There is a term called ‘regulation by enforcement,’” she says. “So if they want to send a message quickly to the industry, I wouldn't be surprised to see some cases filed. Firms then take that information and make changes to ensure they cannot be charged by those same violations.”

The threat of regulators prying into his firm is definitely a reason Friedman's kept his firm off Facebook, Twitter and LinkedIn so far. And Curt Lyman, a partner and managing director at HighTower Advisors in Palm Beach, Fla., has a Facebook page — but uses it to convey information about his being an athlete — and not at all about financial services.

“The regulations surrounding the use of social media are sufficiently harsh that I made a conscious decision that I don't want to run afoul of regulators,” says Lyman, who nevertheless believes social media will eventually be adopted as widely as email is today. “But the regulations are probably several months if not years behind the development of the technology.”

What Consumers Want

Still, even custodians, who may want to link with advisors, have minor presences on these sites. Of four major custodians including Fidelity, Pershing, TD Ameritrade and Schwab — only the latter has a fairly robust Twitter following among RIAs with its channel (@Schwab4RIAs), and this number is in the low four figures. Betty Crocker (@BettyCrocker) by comparison tweets to more than 41,000 followers a day. Lady Gaga (@ladygaga)? More than 8.6 million read her thoughts.

But to Aite Group's Shevlin, this highlights another key reason why a social media presence is unwarranted, at least for now. Particularly on Twitter and Facebook, consumers who flock to brand presences do so for emotional reasons — such as being fans of a band, or a favorite vacation spot. But when becoming fans of a company, consumers typically want some kind of edge. They're looking for a bargain.

“The vast majority are connecting to get coupons and discounts,” he says. “People aren't connecting to financial services firms because they have an emotional connection to them. They're looking for a better deal.”

That doesn't fit with the typical profile of a financial advisory firm. High-net-worth investors are likely to be more concerned about quality financial advice than getting their advice on the cheap. Reps will want to consider whether Twitter or Facebook in particular will connect them to appropriate prospects. Will the kinds of investors they target want to hear from their rep over this medium, in 140-character quippy sound bites?

“You can form relationships with people through Twitter but it's not an intimate medium,” says Stessa Cohen, research director at Gartner Inc. who follows the banking industry and advisory services. “And especially around money, people get funny about that. The whole thing financial services people have is trust and do you want to exchange trust for cutesy? Trust is hard to earn back once it's gone. It's a currency.”

All it can take to damage that currency — the financial advisor's reputation — is one poorly thought-out tweet. While an angry email sent privately through a Web site is unpleasant, a broadcasted slam can be far more damaging.

“From a financial advisor's perspective, you certainly don't want people talking on Twitter about specific account related information,” says Aite Group's Shevlin. “And I can't understand why anyone would want to air their dirty laundry in a public way.”

So for now, social media tools may beckon, especially to the more adventurous rep. But considering their limited prospecting power so far, combined with intense regulatory oversight, reps may want to temporarily shelve any immediate plans to jump on these sites. Sure, 25-year-olds are tweeting and friending away, and likely to expect to communicate with any businessperson over these mediums in the future. But when they're finally ready to start talking investments, experts say reps will still have time to build their social media presence without fear of falling behind.

“I don't think the learning curve to communicate on Facebook or Twitter is so high,” says Shevlin. “So if a rep isn't communicating today on social media, and waited a few years, it isn't like the other guys will be years ahead. You'll just jump in. This isn't rocket science.”

WHAT TO LEARN BEFORE YOU “LIKE” AND LEAP

Still tempted to tweet? Before building that fan page, FrontLine Compliance's Amy Lynch suggests looking into outside firms that offer to monitor social networking sites for compliance. While not cheap, they're certainly a better option than being the focus of an investigation by the SEC.

Lynch acknowledges that guidelines are still confusing to many advisors who feel a need to dabble with social networking tools like Twitter, Facebook and LinkedIn. But making the effort to try to stay on the right side of compliance is likely to at least temporarily appease regulators, a role Lynch herself once played for both the SEC and the FINRA.

“At this point, effort does speak volumes with regulators,” says Lynch, founder and president of the New York and Washington, D.C.-based FrontLine. “A firm hiring a vendor and looking for a solution will go a long way with regulators because it will show [compliance] is important to the firm, and that they're trying to do it correctly.”

Also, reps may want to think about starting small, and launching just a Facebook page or a Twitter account where they follow, rather than post. “You might want to get in with a measured pace,” says Daniel Bernstein, director of professional services for the Englewood, N.J.-based MarketCounsel.

Lindsay Tiles, Schwab's director of corporate public relations who manages the firm's Twitter channels, agrees: “You don't have to be on every platform, everywhere at once,” she says. “In fact, I would highly recommend against this.”

Still, when a “like” can easily look like a thumbs-up from a client, and a large Twitter following can appear as thousands of recommendations, the waters around social media are still hard to navigate. So what's ultimately the safest bet?

“If hiring a vendor to monitor these sites is beyond a firm's means, than the safest, most conservative way would be to have a policy that prohibits using these sites for business purposes,” says Lynch. — Lauren Barack