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Customers now expect service where they are, at the time they choose, in the format they choose. And they want to have a say in what is offered to them. The tremendous potential that social networking offers to meet this challenge has become clear to most financial advisors. However regulatory hurdles in the financial industry present particular challenges.

Regulatory challenges

The Financial Industry Regulatory Authority released in January 2010 some much-awaited guidance on social media, in Regulatory Notice 10-06. Key challenges for financial advisors intending to use social media include:

Retaining posted data, ensuring discoverability and auditability

While FINRA has specific regulations for data retention, sites like Linkedin or Twitter do not retain data and most of the time the employer of the financial advisors is not aware of what was posted.

Protecting intellectual property

Without a proper social policy in place and without the implementation of the policy being monitored, there are risks that intellectual property issues come up when online conversations deal with proprietary topics. Moreover, sites like Facebook and Linkedin co-own what is posted.

Avoiding FINRA fines for lack of compliance and discovery costs

The fines for lack of records compliances average more than $120K, and discovery fees for companies with over $B in revenues average over $1M.

Preventing data leakage:

A recent study by Proofpoint found out that 35% of surveyed US companies had experienced a disclosure of information of sensitive or embarrassing nature through social media channels over the last 12 months. And a study by Forrester Research estimates that he average data leak results in a $1,5M loss for an organization.

Opportunities

Increased productivity

A study by the Altimeter Group found that companies with the highest level of engagement in social media saw their revenues increase by 18% in the last 12 months, while those that were the least engaged in social media saw their revenues decrease by 6%. Interestingly, a study conducted at the same time at MIT revealed that employees that has the most extensive personal networks were 7% more productive than their colleagues.

Customer service

Social media enable to engage customers about the issues that matter to them. Bank of America uses a Twitter account to let customers post questions. Six representatives, whose photos appear on the Twitter page, are standing by to “help listen and learn from customers.” Depending on the need of the customers, a team member may follow up with a phone call. The team has already 10,000 followers and has sent 16,000 Tweets to customers.

Sakes & marketing

With millions of interest groups on Facebook, and 500K on Linkedin, financial advisors have a plethora of forums to interact with targets, build awareness for their products and services, engage potential customers in conversation about features and benefits and convert them into customers. According to Deloitte data, 47% of baby bookers now them actively maintain a profile on the social web, up 15% from 2008. Boomers also love Facebook far more than other social media sites. 73% claim to maintain a Facebook profile, while only 13% are present on Twitter.

Reputation capital

In the financial industry, where reputation is a major part of the capital, a single disgruntled customer can instantly create lasting reputational damage. 90% of the 2 billion of people with internet access worldwide use search engines to shape their opinions. 90% trust other people’s reviews and comments, while only 15% trust corporate communications. 62% of those who read one negative review go on to visit a competitor web site. If used with the proper expertise, social media offer an opportunity to correct the online record and restore a balance of fair perceptions about the organization.

Recruiting

Platforms like Linkedin (75M users), Viadeo, (30M), Xing (9M), are fertile grounds for finding talent: competent professionals that are not yet actively looking for a new position, and professionals already at 2-3 levels of separation with your extended network. Linkedin alone has more than 450K groups where it is possible to network with professionals in virtually any industry. 4 million financial professionals already have a Linkedin membership.

Four platforms that help you meet FINRA/SEC requirements for social media communications

New technology is coming to market, which enables brokerage firms to comply with FINRA’s communication rules when posting on social media. Most large broker-dealers like Bank of America and Merrill Lynch and Morgan Stanley Smith Barney do not allow advisers to conduct business through social networking sites, but are monitoring the situation closely for new opportunities. Here is an overview of some of these platforms.

Socialware

Socialware’s technology allows financial companies to transform public social networking sites like Facebook, Twitter and LinkedIn into enterprise-grade channels within the framework of their existing business processes. Their “Risk Manager” allows companies to easily implement a social media policy for employees, either in the office of remotely. Each social post can be monitored by a compliance officer and archived to guarantee FINRA compliance. Their “Social Marketer” allows employees to clearly distinguish between personal and professional content. All professional content is aggregated and delivered utilizing a method that increases the free traffic flowing into that company’s web site. At this time, SocialMarketer supports Linkedin, Twitter and Facebook. Upgrades to support MySpace, WordPress and YouTube are planned.

Socialware.

Arkovi

Arkovi delivers archiving, compliance and market intelligence tools to access social media from anywhere there is a web browser (home, office, mobile). The platform allows companies to comply with FINRA and SE regulations for record keeping of electronic communications. It has always0on archiving and access to social media accounts, as well as powerful on-demand tools for search, reporting and export. Like Socialware, the platform enables an enterprise to pre-screen content being posted to social media forums prior to releasing it.

smarsh

smarshCRM is a high-touch, client-centered, total workflow solution that systematically creates, simplifies, and facilitates the adviser’s practice management processes. Most CRM platforms are very complex, hard to understand and take many hours of training to use. The user-friendly interface is intuitive. In smarshCRM, your campaigns can systemize and automate your entire practice workflow. Track client contact. Create scheduled tasks. Monitor project status. Seamlessly incorporate compliance procedures. Shared campaigns enable everyone on your team to have real-time, up-to-date information. The platform allows you to perform the tasks necessary for compliance, including moderation, archiving and supervision of social networking activities.

Smarsh provides proactive message archiving solutions that help companies manage compliance and records retention for SEC &FINRA, FRCP, SOX, HIPAA, BI 31-103. The platform allows for e-discovery and litigation readiness: the email is managed so that it can be produced in a timely and complete manner. A feature called “Virtual Compliance officer” automates routine supervision tasks for efficiency and policy enforcement. Their SmarshEncryt meets email encryption obligations with a secure messaging solution, and their instant messaging captures, stores indexes and retrieves IM to meet regulatory obligations.

NRS

In May 2010, NRS launched a new version of ComplianceMAX, a product used by many broker-dealers, investment advisers and insurers. The new version allows firms to automatically capture publicly accessible social networking pages in addition to the other electronic media and documents already accessible by the product. Social networking pages can be grabbed for processing, annotating and archiving to meet compliance requirements. This creates a trail for compliance officers and auditors alike to follow, search, parse, organize and analyze.

The blogs of these three vendors, as well as Facetime.com, SocialTurns andLinkedFA, are good places to track the evolution of FINRA requirements for social media and social networking for financial advisors, as well as the emergence of new platforms and features that help meet these requirements.

The real challenges ahead

The possibility for financial advisors to make broad use of social media in compliance with regulatory requirements is growing each day. However, as regulatory hurdles are overcome, financial advisors will start facing the real challenges in adopting social media.

There is a temptation to go into social media blindly, only to discover later that money and time has been wasted and no results accomplished. A recent study by Digital Brand Expressions revealed that while 78% of companies use social media, 60% do not have a strategic plan for their social media usage. And of those that do have a plan, only 29% have a clear internal policy on how employees should use social media.

Financial advisors will need to learn how to design and execute marketing and PR strategies that integrate offline and online marketing and PR strategies. They will need to learn how to shift from outbound to inbound marketing, identify influencers online, discover their unmet needs and listen to their complaints, engage them in new ways around competitively superior content. All of this 24/7, and in real-time.  And they will need to partner with their targets to create products and services that meet the needs to the market in a competitively superior manner.

Last but not least, on the internal front, financial advisors will need to deal with the significant impact on organizational culture and with the significant disruption in organizational power and processes brought upon by social media.

How do you see the road ahead, in terms of adoption of social media by financial advisors? regulations? organizational culture? challenges and opportunities in the marketplace?

I look forward to your reading comments.