SOCIAL NETWORKING:
A POWERFUL TOOL, BUT STILL IN ITS INFANCY
Feature Article
Gina Lauer

Gina Lauer is a contributing editor of Bank Insurance & Securities Marketing. She can be reached at glauer@bisanet.org.

ARE YOU AND YOUR BANK REPS linked in to LinkedIn? Is your face on Facebook? Are you tweeting on Twitter? Do you have a space on MySpace? How about your own blog?

The dizzying number of social networking possibilities on the Internet has opened up opportunities for those in the financial services industry to network, find prospects, job search, check on competitors, and more.

The downside: How do you use these sites to your advantage, and how do you make sure you are in compliance with federal and state regulations, including the Financial Industry Regulatory Authority (FINRA) and the SEC?

"The real benefit of social media for really any company is that you're able to tap into and listen to what is happening out there—what people are saying about your brand," says Alan Maginn, senior analyst in the consulting services department at Corporate Insight (New York).

Maginn says even if a firm doesn't get involved in the "conversation," they can listen and "get a really good understanding of what the consumer experience is like, what people think about them."

Among the top social networking sites, LinkedIn appears to be one garnering the most interest from financial services professionals. At last count, LinkedIn had 43 million professionals registered with the site, where people can network, post resumes and communicate in shared-interest groups. While LinkedIn still lags behind other popular social networks such as Facebook and MySpace in terms of rankings, the site does seem to be gaining appeal.

Kip Gregory, a consultant, speaker, and the author of "Winning Clients in a Wired World," says LinkedIn is one of the most beneficial sites for financial advisors. In July, he took part in a webcast on "Using Social Media to Market Your Practice," sponsored by InvestmentNews.

Gregory says some 1,300 people, a blend of advisors, compliance personnel, executive management, home office marketing and sales managers, wholesalers, and consultants participated in the online session. An informal poll of the registrants showed that "far and away" the most-used social media among the participating financial professionals was LinkedIn.

Intelligence-gathering potential

"One thing that needs to be conveyed loudly and clearly is that these tools offer jaw-dropping, intelligence-gathering potential," he says. "Not only for the information they give you about people, companies, and organizations, but because they reveal hidden paths of connection from you to opportunities that—were it not for a site like LinkedIn—you would never know already exist."

He often hears the comment that "I thought [LinkedIn] was for people looking for a job." And although that can be the case, the site also can help sales staff network, mine for prospects, and more. And they can use the same set of tools and skills they already employ when prospecting or networking in an office or branch.

'The real benefit of social media for really any company is that you're able to tap into an listen to what is happening out there—what people are saying about your brand.'

"You can obtain all kinds of useful background from a person's profile including details about where they work, their job duties, and groups they are involved in, as well as their personal interests—all volunteered by the person themselves, and all free," says Gregory.

Gregory has some tips and observations on using the site:

• If you register for LinkedIn (or other social media), use a version of your bio or other content you intend to use that has already gone through an approval process by your firm or bank (e.g., a bio that already appears on the bank website) to complete your profile.
• Reach out systematically to people. Touch base with the contacts you know best first. Monitor what's happening with them—changes in their profile, groups they join, updates they offer on their activities—and use that activity to stay in touch with them. In other words, start from you "inner circle" and work out.
• Check with your bank and/or broker/dealer to find out if there is a policy regarding the use of social media. Always be cognizant of SEC and FINRA guidelines that might impact how you conduct business or interact through these sites. And use your common sense, he adds.
• Do NOT send work-related emails through the networking site. Be sure all correspondence goes through your bank or firm's email system for archiving and supervision purposes.
• Be careful not to mix personal and professional communications, or post material that might be considered unprofessional. Again, common sense is key.

A compliance challenge

Compliance issues continue to be a key concern for financial advisors and their bank or broker/dealer when dealing with social media, as well as blogs and forum postings. FINRA's Guide to the Internet for Registered Representatives (www.finra.org) covers a variety of information on website postings and usage, but some say the guidelines are not specific enough. FINRA also has put out a series of podcasts addressing electronic communications and 1) websites, 2) blogs, bulletin boards and chat rooms, and 3) social networking websites.

"While those efforts are a step in the right direction, the challenge is that interpretation and enforcement of the guidelines remains up to the supervising firm. So a lot of the decision-making process about which tools to use and how to use them is still subjective. Given the rapidly changing environment we're in today, firms are understandably leery, and looking for more concrete guidance from the regulators that has not been spelled out yet," Gregory says about the guidelines.

He notes that some companies have blocked access for financial advisors to certain networking sites. Most of the time the blocks appear to be for compliance reasons, but management also seems concerned about work time that could be wasted, so sites like "You Tube" are often restricted as well.

Gregory says that financial advisors and those in related professions should turn off the "recommended" function on their LinkedIn profile page because it is considered a "testimonial" and therefore violates section 206(4) of the Investment Advisers Act of 1940. While it may be okay for someone to recommend you to others, it's not acceptable for you to promote their recommendation.

Corporate Insight's Maginn agrees that financial advisors have to be mindful of FINRA and SEC regulations, and that those entities "are monitoring this." But, he says, "They're using old terminology." They're talking in terms of sales literature and advertisements and applying that to a communication process in the social networking world.

"So I really think it's more of a compliance challenge than necessarily a risk," he says.

From a strategy point of view, Maginn says, firms need to determine in advance what they want to get out of social networking and what's possible based on the regulations imposed on the financial services industry.

He says there are two different ways a firm can use social media: internally or externally, although these are not mutually exclusive, "Are you going to deal with your clients and your prospects? Are you going to deal with people within the firm? Or do you want to concentrate on both at once?"

Although no one has yet been able to calculate the return on investment (ROI) of social networking, Maginn says that there have been some "great examples" of companies benefiting from the use of social networking on an internal basis.

"We saw that Network World and IntranetBlog both noted that T. Rowe Price was using a series of wikis and RSS feeds, as well as some additional social media elements for training employees," he says. "They have a group of people come in each year during tax season, and found that they were answering the same questions over and over again."

So they built a Wikipedia-style resource with input from the group as questions came up. Then employees were able to subscribe to it and research certain topics through RSS feeds. Maginn says the project reduced the time and effort used to train these people.

"I think the collaborative effects and the efficiency can be dramatic," Maginn says.

Still, everyone seems to agree that social media is in its infancy, and some networking sites have lost steam or folded while others continue to jockey for top position.

"We are looking closely at this channel but don't have any solid plans yet because it's changing so fast. There are so many new things coming and going," says Ken Yarbrough, senior vice president and Director of Retirement Strategies at Atlanta-based SunTrust Banks, Inc.

Yarbrough has been keeping his eye in particular on retirement and boomer-related sites.

"Some of the statistics are incredibly appealing," he says. "For instance, the fastest growing segment of Facebook users is 50-plus." But Yarbrough says there's still a lot of uncertainty. "There doesn't seem to be a clear leader; there doesn't seem to be a clear place where people are going for retirement information."

He says there are definitely compliance issues to address as well. "It's very hard to do any kind of 'know your customer' vetting because you don't know who you're talking to."

Check with you bank or broker/dealer to find out if there is a policy regarding the use of social media. SEC and FINRA guidelines can impact how you conduct business through these sites.

—Kip Gregory

Yarbrough also notes that "there's been a lot of pushback—on Facebook particularly—when companies have tried to do a 'sales job' on Facebook users." So SunTrust has purposely stayed away from any communication that might cause such a backlash.

Does he think social media might be advantageous as a way to attract the Generation X and Y populations? "Yes, I do. I see benefit in going after the boomer generation as well. I think that they are very much a wired community. We use email and other online tools to reach that community," he says.

Social networking, too, has spawned a powerful "viral word of mouth" that could have implications for financial advisors as well. If you are a good financial services provider or a good advisor—or a bad one—that information will start showing up in blogs and on other sites, Yarbrough explains.

In the meantime, he continues to talk to peers and competitors. "Everybody's trying to figure out what's the right way to do this or how to do this. And I haven't heard of anybody yet who's cracked the code."

Corporate Insight's Maginn suggests a more aggressive approach. "A firm can't keep their head in the sand about this. They really need to come up with a strategy and do it soon. They need to get out there and start monitoring it at the very least."

He says firms can continue to develop their strategies over time because "there's still a huge learning curve for everyone."