Financial Advisors Tiptoe Into Social Media

Facebook, not long ago the exclusive social domain of students, is being added to the marketing arsenal of financial advisors big and small.

Seventy-one percent of advisors have a personal or business Facebook profile and 55 percent are now on LinkedIn according to a 2011 survey by American Century Investments.

Registered investment advisors, who tend to run their own independent businesses, have adopted social media the most aggressively. Cambridge Investment Research has enabled its advisors to interact with clients since last September while Commonwealth Financial Network began offering interactive capabilities this month.

And now the traditional Wall Street firms are starting to learn the basics of tweeting, liking and connecting. Late last month, Morgan Stanley Smith Barney became the first wire-house broker to announce a social media strategy involving the posting of pre-approved messages on Twitter and LinkedIn.

Morgan is testing its strategy with a small group of advisors and plans to roll out capabilities firm wide in about six months, according to Lauren Boyman, MSSB’s Director of Social Media.

“For more than a year, there has been demand to be on LinkedIn,’’ Boyman says. “Clients were trying to link in to them and advisors felt frustration not being able to use it. They realized there is something to this.”

Boyman says MSSB plans to allow advisors to engage in more interactive conversations once they gain confidence with new social networking tools.

MSSB’s decision to launch with only static content has drawn criticism from some social media advocates.

Victor Gaxiola, social media strategist for Morgan Hill, California-based Gaxiola Financial and owner of social media consultant Red 7 Marketing, says the effort feels incomplete and negates the unique voice of each advisor.

“It will be interesting to see how soon Morgan Stanley’s [wire-house] rivals react,’’ says Gaxiola. “I think they will sit back and see what happens.”

Bank of America's Merrill Lynch will soon allow a small group of its advisors to fully interact with clients on LinkedIn and expects to open the practice to all advisors by the fourth quarter.

Wells Fargo Advisors allows its financial advisors to post static information on LinkedIn and is investigating a more interactive presence.

Wall Street has been slow to adopt social media due to regulatory constraints. Regulators treat social media exchanges as if an advisor is conducting a live seminar or client meeting and require firms to retain records of all messages.

The emergence of software technologies to handle record keeping has lowered one of the main hurdles to adoption, advisory firms say.

Lack of familiarity with social networking has also limited usage. Training at Commonwealth and Cambridge has focused on getting FAs comfortable with the medium. Both Commonwealth and MSSB have built internal social networks to allow advisors to interact with their peers and practice using the new technology.

Once advisors are up to speed, Commonwealth Chief Marketing Officer Todd Estabrook says social networking can serve as a powerful tool for prospecting and building stronger client relationships.

Advisors who used social media reported greater growth in revenue, assets and clients than those that did not and expect to maintain higher growth rates going forward, according to a 2010 survey of registered investment advisors by Aite Group.

The interactive nature of Facebook and Twitter allow followers, who could be clients or prospects, to ask questions and have advisor responses shared with the community. Clients, in turn, can act as advocates for their advisors by distributing timely content to friends in their own networks.

Sharing capabilities allow for more efficient distribution of useful information. MSSB, for one, will initially use social media to meet advisor and client demand for its investment research and thought leadership content.

A social media presence also enables advisors to act as content curators, filtering through the reams of financial reports and news stories to identify and share the information most relevant to their clients. Following the earthquake and tsunami in Japan, Gaxiola Financial posted messages on Twitter and Facebook that exposure to Japan in client portfolios was minimal.

“It’s a message you want to get out to clients right away,’’ says Gaxiola. “If you have a big book of business, it’s much faster than trying to contact each client individually.”

Advisors aren’t the only beneficiaries of viral marketing. Investors searching for an advisor can tap social networks to vet potential candidates.

“People can ask questions, share examples, recommend to others and validate their options and choices,’’ says Mark Brundage, who runs the financial advice website Adaptu.com. “People buy from who they know and trust - this is one way to get a trusted recommendation in selecting an advisor.”

Gaxiola believes each form of social media has a place in an advisor’s marketing efforts. He says Facebook is best for communicating with clients and well-known followers. LinkedIn is the preferred venue for establishing networks with other professional such as accountants and estate lawyers. Twitter, meanwhile, is well suited for creating awareness and prospecting.

Social media has changed the way many companies do business but Commonwealth’s Estabrook warns that it’s not a cure all for financial advisors. He suggests advisors integrate social communications into an overall marketing plan that includes websites and other media and be careful to maintain a consistent message across all platforms.

“As an industry we are testing our way into the best uses of social media,” Estabrook says. ”Firms are embracing this as a valuable channel that is here to stay. Those [advisors] that will get it right are the ones engaging in it now.’’