5 things for financial advisors to consider about social media

September 4, 2014 Categories: The Art of Advising
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Financial advisors and social media

Social media has become a hot topic in the financial industry. Over the past several years the questions I hear from advisors are increasing: Should I be using it? Are investors looking for investment information on sites like Facebook and Twitter? How much time should I commit to my social media strategy? How will I know if it’s working? But the most common question I hear is, “How do I get started?”

If you are an advisor asking that question, we are here to help. But first, let’s set some context about what “social media” is (and what it isn’t).

“Social media” is a much misunderstood and much misused term. Social media is not Facebook®, Twitter®, LinkedIn®, Pinterest®, or any of the social networking sites that people often think of when the term “social media” is used. It is bigger than that… and actually much simpler to understand.

So let’s break it down:

  • “Social” derives from the Latin “socialis” or “socius” meaning companion, ally, associate and relates to those things that we do collaboratively with our allies and associates.
  • “Media” is a term we are probably all familiar with, as it’s been around to describe newspapers, television, and radio and is defined as a “medium of cultivation, conveyance, or expression”
  • Therefore “social media” is a medium of cultivation, conveyance or expression involving our companions, allies and associates.

By this definition, social media is not new: It’s been around since the public forum and can take the form of a public debate, a bulletin board at the coffee shop, or your high-school yearbook. What’s new is that it’s now been digitized and given scale and transparency that allows good ideas to spread very, very quickly and bad ones to spread perhaps even faster. (I’ll leave the judgments of Gangnam Style and the Harlem Shake to you.)

Social media on the rise

25 years ago, most of us didn’t know what email was. But how many of us would even consider doing business without it today?

In the same way, social networking sites are becoming an increasingly important way for many people to communicate. Many of these sites are very well established. For instance, did you know that:

  • Facebook launched in February 2004. It is now 10 years old and has more than 1.3 billion monthly active users (with more than 800 million users accessing the site each day).1
  • Twitter launched in July 2006. It is now 8 years old and has more than 270 million monthly active users (with more than 50 million tweets sent every day).2
  • LinkedIn launched in May 2003. It is over 10 years old and has more than 300 million members (with more than 100 million from the United States).3

It’s time to stop thinking about social media as a fad and to start thinking about it as a communication medium that could be increasingly relevant to your business and the lives of your clients. Especially when you consider recent data from Pew Research that shows 74% of online adults in the U.S. use social media. As you might expect, the numbers are higher among the young than the old, but even in the oldest cohort, there are strong signs of growth. In 2013, usage among adults 65+ increased from 32% to 49%!4

So, what do you need to know before you get started?

Before you create that Twitter account, it’s important to understand the regulatory environment of our industry, so that you can venture into these new waters safely and effectively.

Here are five things to know before you begin:

  1. Follow the rules of your firm – Above all, the rules of your firm will govern what you can and can’t do. If the rules state that you cannot use social networking sites, then you can’t use social networking sites. Understand the specific guidance of your firm and follow them closely.
  2. There’s nothing special about social – FINRA and the SEC have not written any new rules to govern social media. The same rules that apply to communications outside of social media apply to social media. Use common sense and keep in mind that, according to the SEC Risk Alert dated January 4, 2012[v],  “Firms’ use of social media must comply with various provisions of the federal securities laws, including, but not limited to, the antifraud provisions, compliance provisions, and recordkeeping provisions.” Additionally, FINRA Regulatory Notices 10-066 and 11-397 provide additional clarity and specifics for compliant use of social media.
  3. Recordkeeping rules still apply – As with all other business communications, it is the firm’s obligation to keep records of communications made through social media. It’s important to note, that this applies to all content posted on social networking sites, including profiles, messages and tweets. Luckily, there are several tools on the market that may be able to help meet the recordkeeping requirement.
  4. Understand the difference between static and dynamic content – Content that does not change regularly, such as a LinkedIn profile or a Twitter background are considered to be static content and are viewed as Retail Communication,8 which means that they need to be retained and also need to be pre-approved by a principal. On the other hand, things like tweets and status updates are still considered a Retail Communication but may be exempted from the principal pre-approval requirement. They still need to be retained and supervised, but with the right technology in place, you may be able to join the social conversation in real-time.
  1. Consider suitability – Because many social media communications are public, it is impossible to know whether specific investment recommendations are suitable for everyone who may be reading your posts. As such, you should be careful not to provide investment advice through social media. Ask your firm for guidance on appropriate language to use.

It can all seem a bit overwhelming at first, but you don’t have to go it alone. Over the next few months on the Blog, we’ll be exploring some ways that you can start dipping your toes into the social media waters.

The bottom line

Social media usage continues to grow and savvy advisors may want to start thinking about how to incorporate it into their communications strategy. The regulatory environment can seem daunting, but the truth is, there aren’t any new rules to follow and with the emergence of low-cost software providers to help you stay compliant, taking the social media plunge might be easier than you think.

1 “Facebook Company Info”. Facebook Newsroom (8/27/2014): http://newsroom.fb.com/company-info/

2 “Company”. About Twitter, Inc. (8/27/2014): https://about.twitter.com/company

3 “About LinkedIn”. LinkedIn Press Center (8/27/2014): http://press.linkedin.com/about

4 “Social Media Use By Age Group Over Time”. Pew Research Internet Project (8/27/2014): http://www.pewinternet.org/data-trend/social-media/social-media-use-by-age-group/

5 SEC Risk Alert (1/4/2012): http://www.sec.gov/about/offices/ocie/riskalert-socialmedia.pdf

6 FINRA Notice 10-06: http://www.finra.org/Industry/Regulation/Notices/2010/P120779

7 FINRA Notice 11-39: http://www.finra.org/Industry/Regulation/Notices/2011/P124186

8 FINRA Notice 12-29: http://www.finra.org/Industry/Regulation/Notices/2012/P127015

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