Go Social, Stay Compliant: 3 Tips for Advisors

Social media is a natural business tool for financial advisors. But by many accounts, financial advisors and broker-dealers are still scared to death of it.

That was abundantly clear when I (Hardeep) spoke earlier this spring on a social media panel at a regulatory industry conference. Separately, Clara’s company, Hearsay Social, often fields requests from financial services firms eager for guidance on how to use services like LinkedIn and Facebook without running afoul of industry regulations.  

It doesn’t have to be this way. Using social media smartly and compliantly is a natural progression for advisors who want to become more client-centric through increasingly personalized service. Across service-oriented industries today, brands are turning to new technologies to better target customers and offer them products and services when they need them.

For advisors, the advantages to social media are apparent. First, social media gives advisors an opportunity to better listen to their customers and deepen those relationships. An advisor connected to a client on Facebook, for instance, might see a posting about the birth of a new baby and take the opportunity (perhaps not right away—give a new Mom or Dad some breathing room!) to offer information about college savings plans. A new job announced on LinkedIn might mean it’s time to suggest a chat about stock options or a shift in retirement goals. Advisors might also use social networks to discover that they share common, nonfinancial interests or hobbies with clients. Those connections could aid in forging closer relationships.

But social media is also an outlet for advisors to initiate important conversations and establish themselves as thought leaders in their space. This way, their connections know who to turn to when they need an expert. For example, an advisor who specializes in life insurance products should regularly post educational material about the different life insurance policies to consider.

Advisors need to understand that investors are no longer getting all their financial information straight from The Wall Street Journal, Barron’s and CNBC—or from quarterly advisor check-ins.

A recent survey by Cogent Research of 4,000 investors with more than $100,000 in investable assets found that 34% of the investors used social media to search for financial advice. More to the point, the survey found that 70% of respondents started using a new advisor, or switched from an existing one, based on information from social media sites.

We understand a big catch here, of course: regulation. There are big penalties for firms and advisors that violate the rules governing issues like fiduciary duty, recommendations and record retention. But we have seen that many advisors are behaving too conservatively with social media—with some eschewing it altogether—because of vague and sometimes baseless fears about regulatory action. But that doesn’t mean you should avoid social media entirely. If you do, your current and potential new clients may find someone else more social media savvy to work with instead.

Here are three main categories of regulatory concern, and our tips for staying compliant: