There are a number of self-proclaimed experts making the rounds in financial advisory circles touting the advantages of social media for financial advisors. But not everybody has embraced the idea. So far, it seems advisors are decidedly split into two camps: those who view this type of communication as a tremendous opportunity and those who feel, like one keen observer who prefers to remain anonymous, that social media "is over-hyped and really appeals only to teenagers, a group of self-promotional buffoons and politicians afflicted with acute narcissism."

Because of the broad array of tools that fall under the "social media" heading, some advisors are not able to differentiate between them. The term might conjure up thoughts of Facebook or Twitter in one advisor, while another might think of LinkedIn, a blog, a wiki, a podcast or even a YouTube video. All of these are, in fact, forms of social media, but not all of them will necessarily be ideal tools for a financial advisor.

Still, the power of these channels cannot be ignored by advisors. According to Opera Software's "State of the Mobile Web" report, Facebook usage grew 619% over the previous year among Opera Mini users globally, while Twitter usage surged an eye-popping 2,859%. According to a January 2010 Sysomos study, 50.8% of Twitter users currently reside in the United States. Another recent study claims that there are 75 million Twitter users worldwide, although only about 17% of them, a little less than 13 million, are active users.

Facebook claims that it currently has 350 million active users, 50% of whom visit it on any given day, and the average user spends 55 minutes each day on it. LinkedIn, a networking site targeting professionals, claims more than 55 million users in more than 200 countries and territories. The company also says that executives from all the Fortune 500 companies are LinkedIn members.

Clearly, social networking sites are attracting a crowd of potential prospects and collaborators. What's less certain is whether advisors can capitalize on the social media phenomenon, and if so, how.

Though these outlets hold promise, for financial advisors a healthy dose of skepticism is in order. The advantages might be obvious, but the risks are discussed less often and are less understood by financial planners.

One of the first things to ask is whether you are staying within the graces of regulators when you disseminate information through these types of media. According to Bob Veres, a veteran industry observer who counts among his Inside Information community many of the best advisors in the nation, "The primary social media concern among advisors is compliance." The good news is that in January, FINRA released Regulatory Notice 10-06, which offers guidance for using blogs and social media Web sites. The bad news is that until it becomes clear how the regulations will be interpreted and enforced, uncertainty remains.

FINRA's previous guidance on electronic communications, which applies to social networking sites such as Facebook, LinkedIn and Twitter, requires firms to hold on to social media records when they are related to a B-D's business. Today, we are only aware of a few firms that archive Internet information for financial advisors. One is SMARSH (, a firm that many advisors already use for e-mail archiving. Another is Arkovi (, a new firm that recently launched a beta version of its software for individuals and small businesses and has a version due shortly with enterprise backup systems. Socialware ( already offers an application targeted at enterprises that includes risk management and compliance tools.

Another consideration when dealing with these sites is the "Books and Records" rule. FINRA Rule 3110 and SEC rules 17a-3 and 17a-4 apply here. Status updates and tweets fall under the guidelines for advertising or sales literature, while in-network e-mail (offered by Facebook and Twitter) or in-network instant messaging can be considered correspondence.

Section 206(4) of the Investment Advisers Act includes prohibitions against certain types of testimonials. Sites such as LinkedIn allow clients to post advisor testimonials, and they also allow advisors to "recommend" others. If an advisor were to recommend a product or service unrelated to financial services, it is unclear what, if any, repercussions there might be. However, if an advisor were to recommend specific financial products or services, the risk would be much greater. By the same token, if others post public testimonials about an advisor it could trigger a regulatory response. 

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