Advisers stuck in neutral as regulators ponder social media

Imagine hearing about an amazing vacation spot from a friend, who insists that you go there to discover firsthand just how great it is. One problem: Neither he nor anyone else can tell you how to get there.

Social media is just such a paradise.

Financial advisers keep hearing raves about Facebook, LinkedIn and Twitter, among other social-networking sites, and they all want to hop on.

In fact, preliminary data from the soon-to-be published 2011 InvestmentNews RIA Technology Study found that 49% of 107 firms surveyed said that social networking is an important part of their business development efforts.

At the same time, however, regulators are holding up big, red stop signs at all the social-media on-ramps.

The “do it, don’t do it” message came through loud and clear at the Financial Planning Association’s Business Solutions conference in Boston.

Advisers were told by conference speakers that social networking is the key to success. It is essential to use social media to re-brand and reposition your advisory firm, they were told.

Speaker after speaker explained how technology is changing the way we communicate both personally and professionally, and that the Internet has opened a new channel of communication between financial services professionals, and their existing and potential clients.

If you don’t use social media to target and engage prospects and clients, advisers were warned, you will be left in the dust.

“Dive into social media,” Gerd Leonhard, media futurist and chief executive of The Futures Agency, urged the audience as he began the general session at the conference.

“People want to be connectors,” he said, adding that just 35% of financial advisory firms are using social media, compared with 85% for other businesses.

“You might be worried about [the] SEC and regulation. But they are also subject to review via social media,” Mr. Leonhard said, which drew laughs from advisers in the audience.

But he glossed over the hard reality: Securities regulators have yet to develop specific rules for the financial advisory industry’s use of social-networking sites. It is high time they did, as advisers are stuck in neutral and can’t move ahead until they know the rules of engagement.

The Financial Industry Regulatory Authority Inc. and the Securities and Exchange Commission have increased their efforts to make sure that advisers aren’t misusing social-media tools, but they aren’t saying what constitutes the appropriate use of the new media.

InvestmentNews reported last month that the SEC has been sending letters to advisers asking for information about how they use the Internet to communicate with clients. Meanwhile, Finra claims that it is considering refreshing its social-media guidelines.

How can financial services firms adopt appropriate social-networking policies when Finra and the SEC haven’t established clear guidelines?

Practical guidelines would remove any constraints and allow financial services firms to compete fairly in a highly competitive business landscape.

Mr. Leonhard encouraged advisers to become active with social media if they aren’t already. “Anticipate what is on the horizon,” he said.

“You need to dive in and do this. Add value to be valued,” he said.

Many advisers with whom I spoke at the event were intrigued and overwhelmed by that message.

“Social media and social networking all sound exciting; they’re in our future,” said one adviser, who asked not to be identified. “But my question to anyone who will listen is: How the heck do I use it in my practice? I am afraid that if I fail to properly monitor the social-networking activities, it could cause some serious headaches with Finra and the SEC. And I don’t need that.”

We don’t need a futurist to tell us that regulators must do something about social-media guidelines now. Intelligent policies need to be in place soon to cover the wide range of advisory business practices.

Jim Pavia is the editor of InvestmentNews.

Related Topics: Just Thinking