White Paper. Social Media for Wealth Managers. - Swaran Kumar Patnaik. Abstract.

Transcription

1 White Paper Social Media for Wealth Managers - Swaran Kumar Patnaik Abstract Today, social media is becoming a popular way of interacting with customers while at the same time improving the firm s brand image. Wealth managers have dabbled with social media for a couple of years but have not been very successful at leveraging it. While, clear regulatory guidelines are still not in place and technology issues still exist, wealth managers that can proactively address potential issues with regards to social media will not only get a head start, but also emerge winners in the long term. This paper discusses the key considerations that wealth managers need to take with regards to their social media initiatives, and how risks around social media initiatives can be minimized through proactive planning and careful execution. This would go a long way in having a successful social media strategy that would create a competitive advantage for their firm.

2 INTRODUCTION The use of social media sites such as Facebook, Twitter, You Tube and LinkedIn has been around for quite some time. While, the adoption of these channels in the wealth management space has been slow, it has seen rapid growth in recent years. The adoption of social media by investors has been on the rise, especially in the age group of years. This is motivating wealth managers and advisors to jump onto the social media bandwagon within the limitations laid down by the regulatory authorities. A majority of wealth managers using social media with caution and are leveraging it for functions such as live chat, providing investment advice, branding, customer education, recruitment and retention. Leveraging social media for transaction execution is still a far-fetched idea due to the inherent risks associated with it. The further adoption of social media hinges on the return on investment, security risks and regulatory considerations around it. 2 Infosys

3 Social Media: Key considerations for wealth managers Today, wealth managers worldwide face several challenges while putting in place their social media strategy. While, some of these challenges are ambiguous, a careful consideration of these challenges and the associated mitigation plans would help wealth managers move forward with their social media initiatives, without increasing the associated risks. Infosys 3

4 1 Adhering to guidelines by the regulatory authorities 2 Calculating the ROI of social media Regulations around social media are in a developmental phase worldwide. Wealth managers are trying to leverage social media openly, but the lack of clarity around guidelines is forcing them to adopt a restrictive approach. This lack of clarity is mainly around the nature of social media postings, the archival process, the duration of archival and sustained monitoring, which would help avoid potential misuse of the media. A majority of the wealth managers are slowly introducing social media amongst their advisors. In many cases, they are staying away from areas where regulations are not clear and the risks are high. Over the last two years, the Securities Exchange Commission (SEC), Financial Services Authority (FSA) and Financial Industry Regulatory Authority (FINRA) have come up with general guidelines around social media. In 2008, the SEC issued a general guidance regarding the use of internet for financial advisors. The broad level guidance indicated that all forms of digital communications are subject to provisions under the investor advisor Act 1940 and are subject to federal anti-fraud laws. In late 2010, the SEC asked investment advisors to document their social media communications with clients. In January 2012, the SEC issued a risk alert asking Registered Investment Advisors (RIAs) to adopt measures ensuring compliance with federal laws. In 2009, FINRA set up a social networking task force to discuss how firms and their RIAs can use social media. The notice from the task force provided answers to questions around suitability, record keeping, policies and procedures, and supervision of content. FINRA also divided the type of communication into two categories - static and interactive. While, firm s profiles are static in nature and need prior approval of the designated authorities of the firm as approved in the company s social media policy, interactive content such as chat room exchanges, s and status updates do not require any such advance approvals. Directives from FSA, the financial services regulator in the UK have been less specific. The FSA views all forms of communication the same way, irrespective of the media used whether it is an advertisement in the newspaper or a firm profile on a social media site. While regulators would take some time before they issue comprehensive guidelines regarding the use of social media, wealth managers who start taking baby steps within the limitation of regulations would benefit the most. Some firms have navigated the compliance hurdle by deploying commonsense logic. For example, a New York based insurance company, which is one of the early entrants into the social media space, started its presence on Facebook in 2009, by allowing its agents to maintain profile pages on the social channel. It also received a significant response to its recent chat series on Twitter. Another US based Wealth Management firm, which is another early entrant in the social media space, has allowed a section of advisors to fully access LinkedIn and Twitter as a way of maintaining the relationship with existing clients. Despite regulatory complexities, as long as managers have adequate policies and procedures around social media usage and a monitoring mechanism in place, a gradual and incremental step towards wider adoption of social media can be productive. Most social media initiatives lack the ability to determine the Return on Investment (ROI). Today, the ROI for social media activities mainly revolves around intangibles such as improving the engagement with customers, creating a better customer experience and developing a better understanding of their needs, and minimizing reputational risk. Measuring hard dollar returns from social media investments remains debatable and challenging. While, social media activities may create downstream revenues over a period of time, measuring the revenues directly attributable to a specific social media initiative is difficult to determine. Of late, social media dashboards have evolved, which are addressing some of the ROI related issues. These dashboards report key metrics such as the number of referrals, page views, subscribers and followers, comments or tweets. Measuring the ROI on social media investments will need robust social media analytics. Analytical applications that focus on capturing the right kind of data and synthesizing it into meaningful insights will go a long way in establishing a near-direct relationship between investments and the dollar benefits of social media. Measuring the benefits of social media activities is still at a nascent stage. Some service providers are doing commendable work in this area, but it is still evolving. For example, some of the largest financial services firms have been using advanced analytics to derive meaningful information from conversations on social media sites and use it to grow their top line. In many cases, firms are measuring the way their customers are engaged by tracking the time they are spending on pages, writing back, and sharing content with their connections rather than tracking measures such as number of tweets, fans and followers. 3 Defining policies and procedures The use of social media sites by employees and advisors requires the organization to have well defined policies and procedures around content creation, content approval, content moderation as well as legal and compliance reviews. Policies and procedures must deal with both - static and interactive content, and must be scalable with the changing business environment and scope. While, many firms have policies and procedures around their social media initiatives, these may overlap with other forms of communication such as advertisements, client communications and electronic communications. Though it can be difficult to differentiate; it is advisable to have separate policies, procedures and compliance programs dedicated towards social media activities of the firm. In light of these considerations, wealth managers and advisors must review their written policies and procedures with regards to social media activities. Communicating these policies and procedures internally would be of utmost importance to ensure effective execution. These policies and procedures should be shared in a centralized repository to enable online accessibility. 4 Infosys

5 4 Wealth Management firms need to monitor their social media sites to prevent violation of federal securities law. Postings on social media sites need to be monitored on a regular and real time basis. The frequency of monitoring depends upon the nature and volume of content as well as the pace of communication. This will also require firms to have sufficient qualified staff to monitor violations. These violations could be related to the size of tweets, content posted or approval workflows. Experts in the social media space advocate the need for a separate compliance monitoring team to oversee this. Going forward, this may become important from a regulatory compliance perspective as well. Firms need to take care that the content published on social media channels does not obviate their need to perform their fiduciary duties such as acting in the best interest of the clients, safe keepers of assets or other regulatory obligations. Further, there needs to be clear guidelines regarding what can be published on the firm s social media site and what cannot. The content also needs to be approved by the firm s compliance team before it is posted. Thus, compliance monitoring tools would soon become an inherent part of the social media ecosystem. 5 Monitoring social media content Wealth Management firms must consider imparting training to employees and advisors on the use of social media. These trainings should aim at educating advisors on how they can leverage social media to grow their business while complying with federal laws. Any new employee or advisor joining the firm should preferably undergo such training. Currently, there are no industry endorsed certifications available on the topic of social media. Thus, wealth management firms would need to build their own social media training programs in order to reduce regulatory and operational risk. This training must be ongoing, catering to the changing regulatory environment and trends. To start with, firms can look at providing trainings to satisfy the regulatory requirements mandated by the SEC, FINRA and FSA. For example, an independent broker dealer based in NY, has made available a mandatory online tutorial aimed at educating its 4,800 financial advisors about the use of social media. The tool helps advisors understand the very basics of social media usage, including regulatory requirements, policies and procedures, content monitoring and archiving requirements. An advisor can create his account only after he completes the training. 6 Training employees and advisors Forming the team For an effective social media strategy, forming a high performance team is the key challenge for many wealth managers. Apart from the lack of credible talent in the market, the lack of well-defined policies and regulations around social media is making it difficult for wealth management firms to assemble an efficient and effective team. Research indicates that start-ups may have small teams of 5-10 people while mature wealth management firms may have larger teams of people. The team size would normally shrink as the social media program matures. The team should be responsible for putting in place the social media strategies of the firm and periodically reviewing the changes needed to achieve the best possible business outcomes within the defined regulatory limits. The team should also be responsible for communicating the changes in policies and procedures to the employees of the firm. 7 Archiving communications Wealth Management firms and advisors need to ensure that all social media communications such as tweets and blogs are retained and archived in accordance with federal security laws. However, the regulatory guidelines are unclear regarding how many years such communication needs to be archived. Communications on social media sites need to be kept in an electronic format that allows records to be arranged and indexed. A logical and automated archival mechanism helps firms to search and retrieve data in a timely fashion, which helps during administrative and legal proceedings. Firms should also look at delivering this content through all possible devices such as PCs, tablets and smart phones. It is advisable to have a policy and procedure around record-keeping as well as training staff on record keeping provisions. Periodic test checking such as key word search also needs to be done to identify shortcomings and to ensure compliance with policies around record keeping. While some wealth managers have deployed archiving and monitoring systems for their advisors, many are in a pilot stage and are looking for a scaled roll-out after successful testing. 8 Maintaining security and privacy By far, maintaining security and privacy of customer information remains the biggest concern with social media adoption. Wealth Management firms must review the security systems built into social media sites to prevent and address any violations. Having a clear policy around building firewalls between the customer, the firm s internal information and social media sites will help firms prevent an information security breach. Firms need to have clear procedures to identify and prevent security lapses that could have serious regulatory implications, which can also dent their brand image. Firms should also develop incidence response models for addressing potential usage violations of their social media sites by users. Infosys 5

6 Gaining competitive advantage through social media Social media has the potential to create significant competitive advantage for wealth managers and advisors in the following areas: Innovation Social media is a very powerful channel to help wealth managers understand what their customers are thinking about. This can help wealth managers develop better product strategies based on customer preferences as expressed in their social media postings. Effectively engaging with customers through social media can also help address negative perceptions and resolve service related issues. Investor Empowerment Today, investors can come together on multiple social media forums to check the credentials of an advisor as well as evaluate the pros and cons of specific products. For example, a US based brokerage firm allows investors to search for a suitable financial advisor by zip code or location and provides an option to share this advisor with another investor. Improved Advisor Productivity Wealth managers are slowly empowering their advisors to use social media in a limited way. Advisors have found innovative ways to communicate with their clients and prospects. Building credibility through social media communications can improve stickiness of assets and hence higher AUM per client. Advisors are now able to post content in a template that has been pre-approved by their respective firms. As an example, one of the US based wealth management firms, rolled out a social media solution that enables advisors to share status updates and tweets in a pre-approved format. This improves the advisor s connect with clients and his productivity, which is directly related to improved revenues and advisor loyalty. Talent Acquisition The ability to attract the best private banking and investment banking advisors continues to be the foundation of a wealth manager s business model. Social media channels such as LinkedIn can help wealth managers recruit highly effective advisors and employees. 6 Infosys

7 Conclusion It is a fact that social media is here to stay and that wealth managers cannot ignore its potential. Regulations around social media in the wealth management space would remain hazy for some time, which would impact the development of technology around it. In such a scenario, wealth managers would benefit, if they can take a common sense approach and proactively work towards putting controls around their activities. This would ensure that they optimize the potential of the social media channel while remaining compliant. The social media space would continue to evolve as service providers become more active and provide tailored solutions to wealth managers, especially around analytics, monitoring and archival. REFERENCES Private Wealth Magazine, November/December 2012, State Street Website Top Wealth Management Trends, 2011, The Social Advisor - Using Social Media effectively in Wealth Management, 2012, com The Alliance of Chief Executives LLC, Volume 5, Issue 3, 2012, White Paper on Social Media in Investment Management, 2012, Social media in Wealth Management, 2012, Social CRM, Infosys Offerings, About the Author Mr. Swaran Kumar Patnaik is a Lead Consultant with the Capital Markets Practice at Infosys. Swaran holds an MBA in Finance and Marketing and has over 10 years of experience in the areas of research, analytics and business process consulting. Prior to joining Infosys, he has worked with Prudential ICICI Asset Management Company and CRISIL. Swaran s expertise revolves around leading and executing medium sized Business Process Management projects in wealth management, asset management and brokerage. He can be reached on swaran_patnaik@infosys.com. Follow us on Infosys 7

8 About Infosys Infosys partners with global enterprises to drive their innovation-led growth. That's why Forbes ranked Infosys 19 among the top 100 most innovative companies. As a leading provider of next-generation consulting, technology and outsourcing solutions, Infosys helps clients in more than 30 countries realize their goals. Visit and see how Infosys (NYSE: INFY), with its 150,000+ people, is Building Tomorrow's Enterprise today. For more information, contact askus@infosys.com Infosys Limited, Bangalore, India. All Rights Reserved. Infosys believes the information in this document is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. Except as expressly permitted, neither this documentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording or otherwise, without the prior permission of Infosys Limited and/ or any named intellectual property rights holders under this document.