A look at the landscape for adviser social media makes it clear that the active early adopters have disproportionately come from the independent (and usually small-firm) RIA environment, and not the broker-dealer community.
Although some have suggested that this is due to the differences in Securities and Exchange Commission versus Financial Industry Regulatory Authority Inc. regulation of social media, the reality is that ultimately, both regulators require the same key points: compliance preapproval of advertising; archiving and monitoring of client communication; a clear policy for advisers about which social-media channels can be used and in what ways; and the general acknowledgement that saying “dumb stuff” (touting stocks, guaranteeing returns, advertising performance) will get you in trouble, whether it's via social media or in any other public setting — where saying such things have always, and will always, get advisers in trouble.
Tightknit firms
Instead, I suspect that the real distinction between social media at (small) RIAs and (large) broker-dealers is more about the capabilities of the firm to realistically monitor activity and the distance between the end-point adviser and the compliance officer/department. After all, the reality is that in a small RIA, the advisers doing the social media, if not the outright owners of the firm, are at most one step removed from the owner and chief compliance officer. As a result, the level of trust and comfort between compliance and its advisers is high due to the long-standing personal relationships typically involved (e.g., the primary people whom the chief compliance officer must “oversee” are an adviser working at the firm for 10 years, a business partner adviser working there for 20 years, and the chief compliance officer himself/herself who may also be an adviser).
By contrast, oversight at a larger broker-dealer is far more removed. A broker-dealer may have his/her CCO career on the line based on the ability to oversee advisers with whom the compliance officer has never met or interacted, and who have an understandably lower level of trust. The natural result: If your career were on the line, based on whatever the one biggest knuckleheaded adviser across your entire organization might inappropriately say, you'd be pretty tightfisted with the social-media compliance too, eh?
Yet the reality is that the tables are starting to turn. Recognizing the growing impact of (and interest in) social media for advisers, broker-dealer compliance departments have been relaxing their grip. Large broker-dealers from Commonwealth Financial Network to Cambridge Investment Research Inc. have been launching social-media programs for their advisers. Even wirehouses such as Merrill Lynch and Wells Fargo & Co. have begun to dip their toes, starting with LinkedIn and looking to expand from there.
LPL Financial LLC has taken such a deep dive into social media that not only does it report that about 40% of its advisers are signed up to use social media, but you can even find their chief executive, Mark Casady, active on Twitter.
And the growing interest in social media from broker-dealers, large insurance firms and asset managers — given their size and scale — is drawing the attention of social-media technology firms that want to provide them a specialized enterprise solution. In fact, the space is suddenly getting quite crowded, with offerings such as Socialware and Actiance, startup Finect and Hearsay Social, which recently raised a whopping $30 million in venture capital (on top of the $21 million it had already gathered) to scale up its social-media enterprise solution in the financial services vertical. While there are a few options for social-media archiving and compliance tools for independent advisers, as well, such as Smarsh and Arkovi, the options seem to be growing more rapidly for large firms than small firms. And some of the enterprise solutions are also figuring out how to turn social media into a client listening tool to help deepen the client relationship by relaying information about client social-media activity back to the adviser, as well.
Of course, many social-media loyalists have raised the question of whether large-firm social media is going to be little more than spewing forth a never-ending array of preapproved “canned” content, with little actual engagement. And without a doubt, if large firms turn social media into nothing more than another fire hose of advertising content, their success will be limited. Yet the reality is that even small independent firms have been clamoring for more resources and content available to distribute, leading to the rise of content marketing solutions such as AdvisorDeck and Vestorly. Which means that the differences between the two channels and how they use social media seem to just get narrower and narrower.
Building business
Ultimately, the real question will be whether and in which environment advisers can really engage in social media to build business. But just as there was once a time where every e-mail had to be preapproved — yet eventually, large firms recognized that communication is different than advertising, and that archiving and monitoring were sufficient for e-mail as a communication medium — so too seems to be the direction of social-media compliance and oversight. Not surprisingly, large firms are starting first with their more “elite” advisers — with whom the trust level is higher — before rolling out the tools and offering more widely. But to say the least, if small firms are counting on the idea that large firms will not figure out how to grow, evolve and manage social media to allow for greater engagement — just as occurred for e-mail — they made be in for a rude awakening.
The bottom line is that the trend of expanding social media is now well under way, and the dollars for technology development — so crucial for the effective implementation of compliant social media — are clearly flowing to the large-firm solutions, not the small ones. Which raises the question: Does the depth of resources being poured into enterprise social-media solutions mean the capabilities of social-media tools for broker-dealers and other large firms will soon leave those for smaller advisers in the dust?
Michael Kitces is a partner and director of research at Pinnacle Advisory Group Inc., and publisher of the financial planning industry blog Nerd's Eye View.
