Substantial social media change and growth

The entire social media landscape has evolved quickly on the regulatory front (the release of FINRA 11-39 was already months ago!), technology front (numerous updates to Facebook, LinkedIn, Twitter, and more), and also, very importantly, best practices as financial advisors discover and improve upon using social media to develop new and strengthen existing business relationships.

A few weeks ago, Chad Bockius, Socialware CEO, and I hosted a 2011 Year in Review webinar. There were so many potential discussion topics, yet we focused on a few specific points:

• Growth of Facebook, LinkedIn, and Twitter
• Evolution of the regulatory landscape (For even more recent developments, read about SEC and FINRA updates this week.)
• What it takes to deliver social business success within a firm
• It’s about the client, not the firm: how client relationships are changing and why social media matters.

Future social business potential

Since we are already in the second week of January, now it’s time to move onto the potential of 2012.

This week, Chad tackles 2012 Predictions for Social Media in a live interview regarding what to expect going forward. Social networking is getting personal for firms. Here are few topics that you can look forward to exploring:

• Overarching trends for business social networking
• Realizing corporate leadership commitment for social media
• How to grow social media use effectively throughout your organization
• What are some of the emerging social media technologies for 2012?

Tune into the webinar and the Q+A to learn more about what to expect for social business developments in 2012.

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.

Social Media is a Key Financial Marketing Tool for the Future — Just Comply!

Tom Groenfeldt, Forbes

Financial firms are striding into social media with their peripheral vision scanning for warnings from regulators of compliance problems.

Mastering Social Media

Ellen Uzelac, Research Magazine

Social networking cannot be ignored, and there’s a right way to do it.

How to Deal with the Brave New World of Social Network Policies

Tom Steinert-Threlkeld, Securities Technology Monitor and Financial Planning

Social networking? Everyone’s doing it. Particularly your next generation of fund customers. You will want to reach them, as they walk and talk through the Internet.

New York Life: Allowing Negative Comments on Social Networks Will Positively Build Your Brand!

Bradon Gutman, Forbes

In this Brand Innovator Spotlight, Ken Hittel, VP Corporate Internet at New York Life explains how the insurance company is growing a positive brand presence online by allowing consumers to speak freely.

Get With The Social Media Program

Mike Byrnes, Financial Advisor

Firms that prohibit use of social media are fighting a losing battle, and should instead focus on how to use it compliantly, said attendees at a social media conference in Boston.

When you hear API, proxy, or hybrid used, it will typically be centered on the topic of social media archiving. And when it comes to compliance, there are some fundamental facts we know to be true:

• Social is a form of electronic communication and thus requires regulatory compliance.
• Archiving business communication on these platforms is a requirement.
• Archiving some of the communication on social networks is not enough.
• Having an effective system in place to detect misconduct is a requirement (MetLife was fined for this last year – they had a policy for email archiving, but the system of management wasn’t effective?)

Just because this is a new medium, it doesn’t mean that regulators will settle for half-measures or incomplete policies/solutions. Firms have a real challenge to not only address the core compliance risks but also figure out how to make social work for the business. And while you are evolving your strategy, be sure to keep an eye on the regulators. FINRA, for example, is issuing additional guidance in September as an extension to Notice 10-06. And in the midst of all of this, social networks are changing daily requiring a constant focus on how those changes impact policies and procedures.

While the conversation typically starts with compliance, it can’t end there. The other side of the coin is business success. You wouldn’t give the keys to a brand new car to someone who doesn’t know how to drive. Social media in financial services is no different. The guardrails of compliance are critical, but those that are getting access must also have the tools and education to deliver results for the business. If they don’t, why take the chance of giving them the keys to the car?

You might be saying, “Yes, I agree, but we are just going to start with compliance.” I can’t fault that approach. The time this becomes dangerous is when the organization focuses on the short-term deployment vs. the long term strategic needs of the business. It is a little like getting in a car to drive cross-country but deciding to leave your GPS at home. Social adoption is a journey, not an event. The road you set off on initially will determine if that journey ends in success or failure.

This puts a premium on having all of the information and education you can before making a decision. Here are some resources to help get you started:

• Social Media Adoption Life Cycle Webinar
• Morgan Stanley Smith Barney Social Media Strategy (video)
• Social Business Activity Cycle

In addition, here are a few questions you should ask of your team or your technology partners before starting your social media journey:

• Can we capture all of the content being created on social sites for business purposes?
• Can we limit access to features on the social networking sites without removing end users from the social networks themselves?
• Do we need to rely on end users to register their own accounts?
• How do we manage personal vs. professional content on these sites?
• Do you have a strategy for how you will ensure end user success (not just access)?
• Do you have a proven mechanism to associate social activity with business results?

These are just a few of the key questions you will want to dive into. After 3 years and 100+ customers, we can share many other questions that your firm will want to consider.

FINRA has shared that they will release additional clarification on social media in a few months.  But, we also know that social media is an ever changing landscape, so it’s difficult to provide a black and white answer to the question… Where is the social media compliance bar?

We recently held a compliance forum with over 30 representatives from our customers. As part of that daylong session we discussed many of the answers to the question above. This experience, plus our deployments with more than 100 financial services firms since 2009, have led to the following 6 points that will help you and your firm ensure you are fully compliant. And this is not just opinion, we’ve had multiple clients go through and pass social media regulator audits already this year.

1. Policy- Compliance starts with policy. Regulators, like FINRA, require each firm to have a social media policy in place before opening access. Unlike other forms of electronic communication, social media requires a close look at the data and the activity that users can create and engage in. In addition, social networking sites are constantly changing so firms should plan for updates and think through how policy will flow from a paper document to technology for automation purposes. For more information on setting social media policy you can refer to the Guides we’ve published on the topic here. In addition, I’d encourage you to watch the recorded webinar on setting policy that was part of our joint LIMRA series title the Social Media Adoption Lifecycle.
2. Training- Just like having a policy, training is a requirement from the regulators. Training should cover everything from your policy, associated procedures and even best practices on how to use social media for business purposes. The latter is not a regulatory requirement but does go hand-in-hand with opening up access to new mediums, like social networks. Before recreating the wheel on training be sure to check out solutions from organizations, such as LIMRA, who are experts at training the field on regulatory issues.
3. Content- Archiving social media data is a fundamental requirement of all regulators. We know that social is treated the same as any other form of electronic communication in the eyes of the regulators. The challenge with social is getting all of the data you need to be compliant. You would never accept archiving 70% of your email, so why would that be acceptable with social? As you explore how you will archive social networking information be sure to verify that all data is being captured.
4. Context- To be compliant in social media you need more than just the data created on the sites themselves you need the context as well. Yes, you must have the content that was posted, say a status update, but you also must have the fact that the data was a status update vs. a direct message. The reason is simple. Messages in social networks are not created equally. Depending on the context you must apply different supervisory principles. Context also becomes critical when a post turns into a full-blown conversation. Supervising a post without the context of a conversation is useless. Another challenging aspect of social networks is the concept of personas. Are you operating in a personal mode or a professional one? This is another area where context will serve you well, ensuring you are scrutinizing the right content.
5. Activity- Another area where social networks create unique compliance risk is around the activities of these sites. On LinkedIn, you can accept and display recommendations on your profile. Unfortunately, this is a violation of the  Investment Advisers Act of 1940. That regulation states that you can’t have testimonials inside of advertisements. What about “liking” a comment? Does that create suitability or endorsement concerns? It can. Part of ensuring compliance will be to limit access to these activities that can create risk for the individual and the firm.
6. Supervision- Supervision is fundamental when it comes to the communication of reps to consumers. With social media certain content must be pre-reviewed, as its considered an advertisement, and certain content requires post-review, similar to email or IM. While there is lots of debate on what must be pre-reviewed vs. post-reviewed (we will save this for a later post) it is clear that supervision of social media can create a real burden if the processes and points of integration to existing systems are not managed or thought through. Furthermore, firms must address the real-time nature of this medium. How will you ensure that the field can use these platforms effectively if your processes don’t support timely review?

Evolving? Yes. Impossible to meet the bar?  No, if you plan appropriately and base your decisions on industry best practices and expertise. And one last word of caution. Don’t just plan for the first 6 months of use. Be sure to consider the compliance challenges that are created as you expand your rollout, eventually approaching 100% utilization (check out this research from Morgan Stanley). It happened with email, and my prediction is that it will happen here as well. This puts a premium on getting it right the first time.

As I encouraged the attendees to jump into the conversation and share their experiences, questions and thoughts, only a few minutes passed before they responded.  This free flowing conversation created an unmatched dialogue specifically focused on the challenges and opportunities of social media in financial services.  During the forum breaks, there was so much conversation between the attendees representing more than twenty firms including wealth management, insurance, broker dealers, and industry associations, it showed the strong interest in this type of event.

All of us benefited from a variety of presentations including an update on the regulatory perspectives on social media use by Steve Selby, Director of Regulatory Services at LIMRA from the roundtable that Socialware and LIMRA hosted in May in Washington, D.C.  Panelists from Forrester, Guardian Life, LinkedIn, and Morgan Stanley Smith Barney, shared their thoughts and fielded numerous audience questions.  In closing the panel, each speaker discussed the one word that explained social media in financial services with answers including “everywhere, dynamic, efficient, relationships.”

Throughout the forum, attendees also discussed what it takes to adopt a culture that embraces social media and how to ensure firms are focused on the differences between social media and social business including the necessity to measure what the firm values when using social programs.

A lot of interesting stats were shared during the presentations.  For example, according to Forrester, 60% of individuals with investment accounts use social media and more than 90% of households with $1MM in investable assets are online. Speakers also made points including one from Steve Holstein, CMO of Guardian Life Insurance of America, “ Social media is here.  The question is what process to put in place to support it.” To learn more about the Social Media in Financial Services Forum, you can read the live tweets from the event by visiting twitter #fincmo.

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.

Advisers recognize the importance of social media, but recognizing the value, and “finding time” to complete those tasks is a constant struggle when dealing with a packed schedule.

Recognizing and acting on those connections is a priority for your business.  Bill Clinton is a key example of someone who has utilized this strategy throughout his life. This knack for connecting with others didn’t just materialize over night. 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 show him that he had been listening to them, by bringing up the personal fact about each person.

In your business, it is just as important to reach out to your customers frequently to let them know you are working on their behalf. A successful adviser connects with their constituents 28 times a year. With anywhere between 50 – 250 customers, it is difficult to reach all those people through email, postcards, phone calls, and in-person meetings. When you think about everything you need to do to be successful, adding social media to that current mix probably makes your head spin!

But, social media isn’t just an additional task. It is an opportunity to build deeper relationships, create new relationships and do it more effectively and efficiently. A key component of your day is still building and maintaining those relationships but how you deliver those touch points has evolved.

The entire Socialware team is pleased to welcome Morgan Stanley Smith Barney to our expanding list of customers that includes the leading financial services firms who are embracing social media in build valuable customer relationships.  Social networks, including LinkedIn, Facebook and Twitter, provide an unprecedented way to attract, win, engage, and retain customers.

Jen Hoyt goes on to report “A major issue in the brokerage industry has been how to utilize social-networking sites while staying compliant with industry regulations that say all electronic messages must be retained for several years. Morgan Stanley Smith Barney said it will implement a technology from the company Socialware that will capture and retain all communications on approved social-networking sites to comply with regulations. Until now, Morgan Stanley Smith Barney advisers who wanted to use LinkedIn for business only were allowed to have static profile pages on the site, and weren’t permitted to post updates or to connect to new contacts.”

Static profile pages are just one example of the challenges for firms with employees who want to take advantage of the numerous benefits of social networks but have been concerned about staying compliant.  Socialware Compass has helped more than 100 financial services firm overcome these types of challenges.  Socialware Voices gives firms even more ability to address the opportunities of social networks in the same way that Morgan Stanley is embracing.  Socialware Insights, a social business intelligence service, ensures firms have the best in class approaches to implementing these programs.

We welcome Morgan Stanley to Socialware, and we look forward to working together to build valuable and measurable customer relationships through social business.

The growth of this market has been tremendous. As we’ve previously shared, firms have been racing, to not only find compliant ways to access sites like LinkedIn, but also eager to learn exactly how to grow their business with these powerful platforms.

LinkedIn specifically is a favorite among advisors in the field. In fact, LinkedIn’s recent demographic study showed that the financial sector has the second highest concentration of industry usage at 13.3% of all LinkedIn users.

While those numbers are exciting they can also be concerning for compliance officers. In Socialware’s survey of financial advisors we found that 40% were knowingly violating corporate policy to take advantage of sites like LinkedIn. In addition, the regulators have made it known that they will address social media in 2011 in a big way. IIROC issued their social media guidance, FINRA announced their examination priorities, which includes social media and the SEC sent out a social media sweeps letter. All of this has created great concern and demand for firms to open up access to sites like LinkedIn, in a compliant fashion.

This relationship with LinkedIn further supports Socialware’s one-of-a-kind hybrid compliance solution. What this means is that firms can confidently open access to LinkedIn knowing that Socialware will monitor and archive all of the required information regardless of time, location or device. More importantly it means that regulated users and their firms can now take full advantage of the LinkedIn platform to help drive networking, recruiting, prospecting, brand building and sales.

As we continue to set the standard for compliant social media adoption and usage in financial services we look forward to working with LinkedIn to drive the industry forward in new and creative ways.

Look for future posts to discuss some of the industry questions coming out of this announcement.