Last week I sat down with Socialware CEO Chad Bockius for our 2012 Predictions webinar, in which we discussed the social media trends he sees emerging in financial services. Now you can listen to the archive of the webinar to hear why Chad thinks that this is the year when social business gets personal, along with his specific predictions for consumers, financial advisors, regulators, and enterprises.

Social Business Questions Advisors and Enterprises Must Answer

Early on, Chad made the observation that “Social is how we live now—not just how we play,” and pointed out that consumers are increasingly turning to their social networks for trusted recommendations on handling their finances. We then talked about a number of issues that financial professionals must address if they want to get the most out of this sweeping change, including:

• What do enterprises need to do to build momentum in social business?
• “Social is the unfair advantage of 2012”—but how engaged does an advisor need to be to expect returns from social?
• What actions can we expect from the SEC and other regulators this year, and what can companies do to be ready?

As you’ll hear in the webinar archive, we left half an hour for Q&A—but still weren’t able to get to all the topics raised by audience members. Here were some of the questions we discussed:

• “Companies are losing support and engagement from the broader firm because only a select few have access to social media. . . . What would you recommend?”
• “Do you have any advice for social networking as it pertains to independent broker/dealers? Is there an added benefit in social media for a B2B-based firm?”
• “When you talk about 100% adoption, are you referring only to the sales force, or to all employees including marketing, product, and support personnel?”
• “We have brokers who are on LinkedIn and they always ask, ‘I’m on LinkedIn, I have connections, now what?’ How would you answer them?”

To hear the discussion around these questions and many others, click here for the webinar archive page. And feel free to leave more of your own questions in the comments on this post.

Image source.

Most of a Financial Firm’s Profits are Made from Serving High Net Worth Individuals and Active Traders

There is a reason why financial services firms spend so much money, time and energy marketing to high net worth individuals and active traders. That’s where they make the bulk of their profit. Think about it, if a financial firm earns 1% annually on assets under management, a $7 commission per trade and maybe mere pennies per share on the spread for trades it takes big numbers to generate a meaningful profit. A client with a $1,000,000 balance would generate $10,000 in annual fee revenue and a trader who makes 500 trades a year would generate $3,500 in commissions plus a few grand in spread revenue. And because these investors might also trade on margin we can expect some earned interest revenue to be generated as well.

Now of course the above numbers are just revenue. Financial firms, like all businesses, have expenses too. The buildings, technology, phones, printing, postage, electricity to run it all and the employees that make it all happen. What this means is that not all customers are profitable for the company. A client with a $10,000 balance will likely not generate enough fees or trading revenue to cover the costs of serving him with the same high touch that is made available to the high net worth set and active traders. And since there are only so many high net worth individuals and active traders to go around the competition for these clients is fierce.

The Top Financial Advisors Also Produce The Bulk of the Profit

The 80/20 rule also applies to financial advisors in the same way that it applies to customer type. I recently spoke at an advisor conference where the attendees were in the top 15% of revenue producers. In order to qualify to be in that room they had to generate $750,000 in annual revenues for the firm. If we apply the same 1% model as above, each advisor would need to manage a book of business around $75 million or higher make the cut. If we assume that an advisor would manage 100 or fewer client relationships this means that each client would have at least $750,000 but likely $1 million or more in investible assets. There are only 8.4 million households in the United States with an investable net worth of $1 million or more and hundreds of thousands of financial advisors chasing after them.

Not Every Advisor Can Be In the Top 20%

The top 20% (or 15% as described above) is just that, the top. Not every advisor will make it to the top. Most of today’s top advisors got there because they were better at hustling for clients with the tools available to them in the past. When I ask these advisors how they built their book of business many of them tell me that cold calls, luncheons, referrals and traditional networking were all keys to their success. Those advisors who could burn up a phone and work a room (the right room) better than their peers rose to the top. Those advisors who struggle with these mediums either washed out or are growing more slowly.

Today’s Top Advisors Will Not Be Tomorrow’s Top 20%

Technology is frequently a disruptive force that shifts the balance of power much quicker than people expect. I have written before that advisors ignore social media at their peril. Right now there are advisors who are grabbing social media tools by the reins and riding them hard to build their book while advisors who are already at the top are holding on tight to the horse that brought them here. It’s only natural.

Will every advisor who is an active social media user make it to the top 20% in the future? No, of course not. Why? Because we are quickly moving to a world where every advisor will be using social media tools as part of their business just as today’s advisors all use the phone and email. Those who use social best will almost certainly rise to the top however, because social media is so much more than just posting updates. Social media tools allow a financial professional to do all the things today’s top advisors did to become successful with much greater efficiency than ever before. Meeting new prospects, staying connected, driving people to events, marketing, client service and staying informed are all aspects of growing a successful financial practice that are greatly enhanced via social media.

If you are a financial professional using or exploring the use of social media in your practice realize that the competitive edge is yours for the taking. Not every advisor is going to “get it” and many of those who do get it are going to tire or get comfortable and plateau. You have an advantage that you might not see again in your lifetime. Social media will never be this new again. If you want to be one of the top 20% who reaps 80% of the value now is the time to go for it.

If you are charged with leading the social media initiative at a financial services company my recommendation to you is to pay special attention to those individuals who are using social most aggressively now. Be sure to give them access to powerful and compliance friendly tools and start studying their behavior. Many of those advisors are going to be your top producers in the not too distant future. The urge to focus on today’s top advisors and drive them to social is understandable and you should do your best with that population if for no other reason than to protect their client relationships. But, there is lightning in the bottle with the advisors who are active on social media already.

With so much value tied up in the top customers and the top advisors it is critical to put a framework in place to connect the two now and for the future. High net worth investors are increasingly using social media and active traders are always looking for an edge, hence the rise of niche social networks like StockTwits. Not surprisingly, financial advisors have flocked to social in big numbers as have insurance agents and bankers to meet these high value clients on their preferred medium. Those who are active and productive early are going to capture the most value.

I mention the bottom line, as in profit, because it is very important to be mindful of the fact that ROI can be generated by increasing revenue or decreasing expense or increasing efficiency. Sure, the top line is sexy. Everyone loves to talk about how they brought in millions of dollars in new business as a result of some new initiative. However, there are many ways to create ROI, particularly with social networking, that may be less flashy but in the long run will make your business much more profitable than it is today.

To get a deeper understanding of why this is, it helps to spend some time digging in to how social media drives ROI in relationship based businesses like financial services.

People and Clicks

When people/brands first look at social media they tend to approach it as they would a traditional marketing channel. They like the fact that it is highly targeted, that they can build an audience of self selected parties of interest. Then they go about sharing their marketing message with the goal of generating click throughs to their site where they hope to convert this inbound traffic from social to sales.

The ROI metrics here are a rather simple sales funnel approach. Followers/Friends/Connections > Content Created x Frequency > Clicks > Sales. The more relevant connections I have with the potential to see my message, the more likely it is that I’ll see an increase in sales.

This is effectively the direct mail model with the added benefit of better targeting data and an audience who has opted in. Executed properly, the “people and clicks” model should generate positive results.

Note: While top line driving campaigns such as special offers or new product announcements are the norm here you can also drive expense reduction and efficiency as well. Why not promote electronic statements as a means to save the environment, ease the client’s paper burden and lower cost? You can also encourage people to use the web channel or iPhone app for trading or simple FAQs so they spend less time in the phone queue while lowering your cost per customer service touch cost.

Network Development and Engagement

Where social really pays off is when we move beyond traditional marketing think into a true networking and relationship marketing process. Here we are focused less on how many followers the brand has but instead we are looking at the financial advisor’s individual networks.

The size of an advisor’s network matters here too but less so than at the brand level. Macro level marketing techniques are designed to produce results when exposed to large numbers of potential customers. An individual advisor does not need, nor can he service effectively, thousands of clients. Depending on his compensation model he may need fewer than 100 or as many as 300 to 400 clients. So, the process and the funnel are decidedly different at the advisor level.

An advisor must build a network. That network should contain as many current and prospective clients as the advisor has access to. The network should also contain complementary referrals sources such as CPAs, attorneys, realtors and advisors from other geographic areas.

The investment in ROI calculation at the advisor level is time spent building and maintaining this network and most importantly engaging with this network and the cost of the appropriate compliance friendly social software solution. The return comes in the form of:

• Lengthening the client relationship (retention) because the advisor is constantly in tune and in touch with his book of business. “Funny picture” “Happy Birthday” “Go Red Sox” are meaningful interactions that let a client know you care AND that you understand WHY he is investing his money. Think of how your firm’s business would improve if your customer retention improved by a few points each year?
• Increased share of wallet. Clients share their lives via social media. Job changes = 401k Rollovers. Death in the family = Potential inheritance or Estate planning. Expecting a Child = 529 College Savings Plan. Getting Married = Household Assets. It’s easier, and usually more profitable, to increase business from existing customers.
• New business from existing friends or connections. Not everyone is in the market for your financial services right now but they will be eventually. Staying top of mind and in tune with their lives ensures that you will be in the running for their business when the opportunity arrises. Think of all the connections your financial advisors have met over the years at trade shows, golf outings, and other events. What are the chances that some of these people might have money in motion each year and be in the need for the advisor’s services?
• New business from referrals. Staying connected to ones network is a tried and true way to ensure that when someone has a referral that they think of you. Ask any advisor where his or her business comes from and most will tell you referrals. There is a give to get networking karma process at work here though. The advisor needs to be actively looking for opportunities to help his network in order to build good will and reciprocity.

In each of the examples above there are also real reductions of cost and significant efficiencies in play. It is much easier to stay connected with clients, prospects and referral partners when they are voluntarily sharing information on a frequent basis with the advisor via their stream.

The ROI will come as the result of the advisor’s ability build and manage a network just as it has for the entire history of the profession.  Advisors and other professionals have happily paid dues to join country clubs, chamber of commerces, Rotary and other organizations because that is where they meet high quality prospects and referral partners. Financial firms spend millions to sponsor golf events and America’s cup racing yachts because it creates an environment where their advisors can work the room so to speak. Social media offers the same opportunity as these options at a decidedly lower cost and with the convenience of going wherever the advisor’s smart phone goes.

Photo Credit: Ewan McIntosh

Here are 4 ways to think about how you can utilize social media.

Your Personal Database:
Remember Bill Clinton’s index cards that we mentioned in a previous post. Bill Clinton created index cards for people that he met, along with a key fact about them. He would review and memorize these cards so that when he met people, he could not only call them by name, but also bring up a personal fact about each person.

That was before the age of LinkedIn.com or Facebook.com. You can now gather the personal information that Bill Clinton stored on Index cards and more just by visiting someone’s profile. Instead of building your own database, utilize pre-existing information on Facebook to gather personal information, and LinkedIn.com for professional information.

Easily Talk To Customers AND Their Friends:
The name of the game has changed. A birthday wish via a hand-written card has evolved into a Facebook post. While hand-written cards can still be very valuable, wishing a person “Happy Birthday” on Facebook.com reaches not only the recipient, but all of his network.

The other day, a financial adviser mentioned that his moment of clarity came on his Birthday when he received 50+ birthday wishes, with over half coming from his clients. Not only did all of his clients see those birthday wishes, but “friends” of clients who wished him a happy birthday viewed these warm wishes as well. What a great opportunity for warm leads!

Reach Prospects:

In the example above, you can see how easy it is to reach your customers AND their network. Referrals are the lifeblood of any business. On LinkedIn.com, you can look for connections of connections. By asking your connections to introduce you to their connections, you can simply expand your network to find new customers and partners.

Also, you can use Twitter to build your prospect list as well. Twitter users are very accepting of followers even if they do not know you. It is easy to “talk” to new people online. Through a quick search, you can find people that are researching finances or partner connections that can help refer business to you.

Time Savings Online:
Social media isn’t about changing your business strategy. The principles of building relationships and engaging with prospects are the same. However, the opportunities that social media can offer you can exponentially increase your reach, and save you time => Social Business.

Being effective is about using your time wisely to make the biggest impact. Social media gives you those tools.

With this release they have turned LinkedIn into a true daily destination. It is a critical step to becoming more Facebook like – at least in terms of how much time users spend on the site (the average Facebook users spends over 7 hours a month on the site!). For LinkedIn this will translate to more users, more engagement and of course more opportunities to monetize the traffic.

The notion of news curation is nothing new. In fact, we are all curators of news – we do it in our daily lives. Have you ever asked someone “did you see that story about the latest…? You have to check it out!” This notion of personal news curation adds value to the people we interact with, starts new conversations and exposes our interests in unique ways.

With LinkedIn Today they’ve taken a conversation that would happen when we see friends, colleagues, clients and partners and exposes it across your entire network and the networks of those in the industries you care about. In the process you learn not just about news, but also what matters to your network and the individuals it represents.

We’ve established this is a great source of relevant news but it is also a valuable fact-finding, engagement, networking  and awareness generation tool. Let’s look at each one:

1. Fact Finding: As news bubbles to the top of LinkedIn Today you not only see the content but also the individuals that shared it. This is valuable source of information for any sales rep or client manager trying to build a more meaningful relationship or looking for an opportunity to engage.
2. Engagement: Sharing out a news item implies a level of interest. Someone took time to post a message to his or her entire network that this piece of information was interesting. In return you have the opportunity to engage directly with that individual either by commenting back, or indirectly, by sharing that article out as well showing that you have shared interests.
3. Networking: Part of exploring a news story is seeing who shared it. This group will be made up of individuals you are connected with directly as well as those that you might wish to connect to. For those professionals looking to expand their network this exposure of content + connections is yet another way you can start to expand your own personal network.
4. Awareness Generation: Now that LinkedIn has over 100mm users it is more important than ever to establish and grow your presence on LinkedIn. If you’re producing valuable content for your industry and network be sure to include a LinkedIn Share button so the rest of LinkedIn can discover you and your great content.

Although the notion of content curation is nothing new, LinkedIn has found a way to make it all the more valuable for professionals. We rely on people we trust to help make critical decisions and seeing the sources they view as important will only help to deepen those relationships and discover new ones.

This infusion of capital is validation of the rapidly growing demand for solutions that will help financial services firms reach their social potential. For Socialware this means aggressively growing one of the best teams in Austin, releasing more ground-breaking solutions, expanding our partnerships and bringing more educational resources to an industry that is desperately seeking to understand how to realize their social potential.

What makes all of this even more exciting is the foundation that we are building upon:

Customers: Today we are the undisputed leader in this space serving nearly 100 customers, which include five of the top national insurance companies, including New York Life Insurance Company; 15 of the top independent broker dealers in the nation; and eight of the top national wealth management firms.

Partners: Socialware signed 5 strategic partnerships in 2010 including LIMRA, the world’s largest association of life insurance and financial services companies, LiveOffice, Smarsh and Global Relay – the top three hosted email archiving vendors, and Symantec, the leader in on premise archiving and discovery.

Education: From the very early days Socialware made a commitment to help educate the industry on the issues and opportunities that social media presents. As part of that effort we launched Socialware Insights – the only information service delivering research, best practices & policies for social media use in the financial sector. To date we’ve had over 4,000 downloads of our Guides, 3,500 webinar views and endless traffic to the site to consume the other great resources that are available.

Community: In addition to the great resources we provide directly we also wanted to create a destination for the community to discuss issues, best practices and news. So we created SocialTurns.com. Today this community is close to 700 users strong from over 20 countries. To help drive the conversation we’ve brought together 13 industry experts as part of the SocialTurns Council – including leaders from companies like Prudential, American Century Investments and The Financial Planning Association.

If you are thinking about joining us, now is the time.  Click here to see all of our current job listings, and of course don’t forget to spread the word.

92% of executives use LinkedIn making it the most popular social network. Facebook comes in second with 51% stating they use it. When it comes to frequency, executives are spending quite a bit of time on these sites. 40% said they are using it many times per day although their capacity for variety is limited. Half of the respondents stated they only use 3-5 social media sites in total.

Another great part of the study were the top five reasons executives use social networks. Here is what they found:

1. Great way to keep track of peers and colleagues
2. Easy access to thought leadership or information that can’t be found elsewhere
3. Good way to showcase themselves or their companies
4. Easy access to learning and professional development
5. To find out what others think of products, vendors or approaches

Of course, there are still concerns when it comes to social media. The top fears listed were:

1. They want control (in an a world based on transparency)
2. Lack of understanding (around technology that changes every day)
3. They fear it will just be a fad (you must have a plan and clear goals)

Intrigued? Looking for someone to model yourself against. Check out the latest article in the Harvard Business Review about Brian Dunn, CEO of Best Buy. The article outlines his use of Social (no he doesn’t outsource it to his communications team!). I found it very enlightening and a great example of where the industry is headed.

Employees are a key element in deploying social media. Today’s younger workers spend a lot of their personal time on social networks, and expect to have access, even at work. Firms that bar such access risk missing out on top performers as more and more Baby Boomers retire from the industry.

According to “Social Networks: The Insurance Agent and Broker of the Future?” (Gartner, Inc., September 2009), social networking is starting to impact insurance buying decisions. “Social networks are beginning to become the prime conduit for online users (especially younger generations) to connect with others who can speak about concerns and interests in an easy, open, and free community,” Gartner explained, citing studies that show that social media is currently in use by three-quarters of the online population in the United States.

The report goes on to point out the major benefits — and risks — that come with social media adoption.

Significant benefits:

• Generating long-term revenue growth. Social network use is growing in all demographics, and has had a major impact on retail and other industries that have embraced it.
• Getting and keeping top talent. Top agents are already using these tools to enhance their relationships with their clients.
• Optimizing marketing spend and effectiveness. Social media is another tool insurers can use to gather customer information and deliver targeted marketing to the right segments.

Worse, there are risks to ignoring social media:

• Risk to the brand. Employees and customers are already using social media — ignore it and risk losing out on significant branding opportunities. Do you really want to be the only agency that is not talking to its customers?
• Compliance risks. If employees are using social media without a firm’s guidance, they could be at risk without even knowing it. And research shows 40% of agents have gone rogue and are in direct violation of their firm’s policy of prohibition.
• Competitive risk. Ensure you’re talking to the next generation of customers. Do nothing and you may lose top talent and loyal customers.

Just as insurers puzzled over how email would impact business a decade ago, social media is a puzzle that the top performers will conquer and find great success. I think we’ll continue to see more and more of these types of reports highly regulated industries, like insurance, dip their toes into social media.

If you haven’t already download the entire report – it is a quick 8 page read and offers some great insight and perspective.

Here’s a summary of they key findings:

1. Financial advisors using social media have higher growth rates in revenues, 19%, AUM, 19%, and in client base, 21%, than ones that don’t. The non-users in the survey report revenue growth of 6%, AUM growth of 6% and client growth of 7%.
2. One in five advisors say they increased revenues and fees from clients through social media efforts. Advisors say they use social media to: reach new prospects, 42%, increase awareness of their practices, 31%, differentiate form other practices, 27%, and increase revenues, 21%. “Advisors using social media (especially LinkedIn) are gaining a competitive advantage over other advisors that are not,” said Michael Byrnes, president of Byrnes Consulting LLC of Boston. “Those competitors that are late adopters are missing out on expanding their reach, brand awareness and opportunities for increased new business.”
3. Firms with the largest assets are not necessarily the biggest users of social media, mainly due to large firms’ reticence to put in compliance guidelines. Advisors who don’t use social media cite the following reasons: compliance, 71%, regulatory concerns, 55%, and negative publicity, 22%. Of those who have social media policies, 81% say that policies inhibit them in their social media use.

Of course, I always point out – and this article by Ron Shevlin agrees – that social media is just one way to market your firm. Effective use of all marketing – including social – helps grow practices. Social media, however, is unique because it allows for two-way conversations with prospects and clients.

The Pershing survey included 144 financial advisors; 33% were employed with firms with $1 billion of AUM or more and 37% with less than $100 million. The rest fell at firms with between $100 million and $999 million AUM. Of the participating advisors, 55% of them are hybrids and 45% are fee-only advisors.

Ask for referrals. All firms preach this, but the survey of wealthy investors found that 75% of them haven’t been asked to refer their colleagues to their advisor. In the era of LinkedIn and Facebook this is the low hanging fruit that everyone should be reaching for. Consider too that nearly 60% of LinkedIn users have high personal incomes and hold executive-level or consultant positions. If you aren’t building your networks online and leveraging those relationships you are leaving money on the table.

Actively keep in touch. Only 38% of investors say their advisors proactively reach out to them when market changes could impact their portfolios – and it’s hurting client retention. One third of investors have changed advisors since 2008, and 25% of the rest of wealthy advisors are dissatisfied with or neutral towards their current advisor. Again social networks can help. Look at the advisors on AdvisorTweets.com. Over 400 advisors are tweeting to clients and prospects about the market. If you aren’t tweeting, who are your clients following? Or even worse who WILL THEY be following?

Stop shouting, start engaging. We used to think about marketing as a chest-thumping activity that ensured we were always top of mind with prospects. Guess what. The old way doesn’t work anymore. Marketing today is about active engagement. Social networks are a key part of this change, allowing you to come out from behind the megaphone.

Think your clients aren’t using social networks? Think again. Another recent post revealed research showing those who use social networks are very interested in hearing from advisors: 63% of Twitter users would pay attention to investment tweets; 46% of YouTube users and 41% of Facebook users would seek investment information from these communities.

The question you should ask yourself right now is this: If you’re not engaging with your clients and prospects, who is?