Memo To Securities Industry: Get Social Jul 20th 2013, 08:29
Rage Against the Machine (Photo credit: Wikipedia)
Social media is pretty much taking over the world, but the securities industry is still scared to death of it. The problem: The SEC and FINRA oversee all industry communication with the public very strictly, so it can be difficult to know how to monitor and regulate the huge volumes of new digital content like Tweets or Facebook Facebook"likes"—which also often emanate from employees' personal social-media accounts, making this content even more difficult to track. The upshot is that many firms simply prohibit their employees from using any form of social media at all. I think this is an over-reaction, and a bad idea.
How fearful are brokerage firms of the new social landscape? A few weeks ago, I served on a panel discussing social-media best practices at a regulatory industry conference (#socialfinregs). We had a very engaged audience of about 500 people whom we were able to "live-poll". Some interesting data emerged: 62% of those polled said their firms don't allow representatives to use social media for business purposes; out of that group, 67% said their companies' primary concern was about supervision of employees, while 17% said they worried about "civil liability". Of those who said their firms do allow social media, 17% were hopeful about its benefits. But 43% admitted they "have no idea where this will lead." According to the poll, 46% of respondents said LinkedIn LinkedIn brings their firm the biggest benefit, followed by Facebook at 20% and Twitter at 17%.
Some of these numbers are disturbing because they show how the securities industry could be left behind as the social-media revolution progresses. Granted, broker-dealers need to be mindful of relevant regulations when supervising employee activity on Twitter and Facebook. But they shouldn't be prohibiting it entirely. As more and more investors not only trade online, but get their financial news and investment ideas from friends and associates online, they expect any registered rep which whom they're dealing to have an online presence as well. Social media is devouring the Web—one out of every four minutes on the Web is spent on a social site—so I can't see how ignoring it can be a winning strategy in any business, including those in the brokerage world. Even the coveted affluent and older demographic is online. Didn't you just get a friend request from your great-uncle?
What's more, some next-generation financial companies that compete with traditional brokers are deeply embedding social interactions into their business models. My company, Motif Investing, allows people to share investment ideas with friends via our Web site and on Facebook, for instance, and customize other people's investment "motifs" (portfolios of securities) online. We are building the industry's first truly social-enabled online broker and are very focused on working with regulators to create new sets of best practices. Any regulatory hassle is worth it to us, because we feel as if we're building a better, more-modern, and more user-friendly model for investing.
Based on our experience, here are five tips for "smart" securities-industry use of social media:
1. Know why you are using social media. You would be surprised at how many people cannot answer this question. Are you going social primarily to acquire customers, engage customers, or monetize new products? Do you have metrics to track your success? To do social right—just like any other big initiative at your firm—you need to set concrete goals, establish ways to track progress, and put mitigation plans in place for when things go wrong. Make sure you have a plan.
2. Use the existing regulatory framework. Don't treat social media as a completely new form of communication that can't be addressed through traditional industry-communication guidelines. It can. Social media is just an evolution of how firms communicate with the public, just like Web pages and e-mail. Use your traditional regulatory frameworks and adapt them, just as you did for innovations like fax and e-mail. Is your tweet a public appearance or a retail communication? Do you have written supervisory procedures, desktop procedures, and a plan of supervision? Reach out to your regulator when it doubt. The rules are actually clearer than you think (for most scenarios).
3. Take an all-or nothing approach to employee use. Ask for employees' credentials for sites like Twitter, Facebook and LinkedIn if they're going to use those channels to talk about your company. That way, you can monitor what's being said about you and shut down comments that are inappropriate. We give our registered employees a choice—either you are completely personal and don't discuss our company—or everything you do is considered business and has to go through our process. Fortunately, there are great tools out there for compliance monitoring of social media—from robust products like Hearsay Social to free, single-featured, more-basic products like archiver Backupify. So that, actually, is the easy part.
4. Train Everyone. Even if they do not engage in social media and are not registered, train your employees. At our company social media is part of the firm element for our registered representatives, but everyone in the company has to go through our training—even our engineers. We are a Silicon Valley startup and we can't afford for something to go wrong, so everyone learns the rules. No exceptions.
5. Hire a paranoid compliance team. This may sound counter-intuitive, given what I've just written, but it also helps to have an internal compliance team that is paranoid and over-alert. It can be a bit cumbersome to deal with, but you'd rather get warnings about potential issues that could blow up in your face than no warnings at all. For example, not too long ago, the CEO of a Motif partner company wrote a piece in the Wall Street Journal about role models for young girls. As the parent of two very young girls, I tweeted the story with a remark that I am banning Disney in my house because I don't want my girls to grow up to be princesses. Right after my tweet (due to good monitoring) my compliance director called and asked me to take down the tweet because it could be construed as a recommendation to short Disney stock. Only perverse logic can lead to that conclusion. But I would rather suffer through false negatives than run afoul of regulators.
Don't be left behind. Approach social media thoughtfully and smartly, but ignore it at your own peril. Your customers are already there.
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