A Tweet Here, a Few More Million Assets There

Many financial advisors are afraid of using social media, but they shouldn't be. The use of social media and the web are correlated to higher assets under management, said Craig Pfeiffer, managing director of marketing and The Client Experience group at Morgan Stanley Smith Barney.

“Social media is not a fad,” said Pfeiffer, during the Business Development Institute’s Financial Services Social Communications conference Thursday.

Investors are actively engaged with technology in their everyday life, with nearly 60 percent of investors online, up from 50 percent last year, he added. Older, wealthy adults are engaging in social media even more than younger generations these days, and people are spending more time social networking than checking e-mail. A web presence can be a great way to attract new prospects—in fact, it is almost mandatory these days.

“Advisors can no longer live with the telephone and a handshake,” he said.

But Pfeiffer said the financial services industry still hasn’t fully embraced social media, except in an outbound, controlled way. The industry’s social media interaction is mostly around telling people about the organization, not around engaging the customer.

Sixty percent of financial institutions have either not launched social media efforts or have launched efforts but are not very experienced with the medium, according to a survey by Aite Group of 166 financial services executives.

The Red Tape

During his presentation, Pfeiffer called upon firms and brokerages to enable financial advisors to leverage social media, but many in the industry are still skittish about the regulatory and compliance issues surrounding the use of social media. Some forms of communication with clients can be considered advertising. Social media can also pose insurance risks for high-net-worth investors.

Social media is “regulated but not prohibited,” Pfeiffer said.

In January, FINRA updated its guidance on the use of social media in its Notice 10-06.
According to the notice, firms must keep records of any business communications made through social media sites. The notice also says that suitability requirements do apply to security recommendations made through the sites, and firms must monitor communications made through social media sites.

Morgan Stanley Smith Barney stays compliant by using the firm’s e-mail address as the identity in social networking, pushing communications into the firm’s firewall. For a more constrained, controlled environment, the firm also has an internal social media platform.

“Fight process with process,” said Anna O’Brien, vice president of social media at Citibank.

Regulators can’t argue with process, she said. Citibank documented its processes and procedures for social networking, down to the details of which emoticons you can use (hearts are prohibited). Citi made an agreement on what has to be reviewed and what doesn’t, and the company is also in the process of hiring a social media lawyer.

When it comes to your firm’s social media policy, FINRA will be looking to see that it’s testable, documented, enforceable and exception-based, according to Adam Verchinski, vice president, IT business analysis manager and marketing and client communications, AllianceBernstein.

“It’s about reaching that next generation of investors who are going to have that brand identity with you.”