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High costs, low value explain meager social media use by financial advisors, experts say

New study shows that financial advisors mostly delete Twitter from practices

Friday, September 4, 2009 – 7:57 PM by Brooke Southall
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Les Abromovitz: Younger advisors may not be in a position to change the firm's culture as it relates to marketing and advertising

Social media is all the rage but financial advisors are still staying away in droves, according to a new survey.

Fewer than 15% of financial advisors use Twitter to communicate with clients, according to a new Investment News survey published in that newspaper. The survey is based upon 238 responses received Aug. 24 and Aug. 25 from financial advisors.

Twitter allows users to send the equivalent of an e-mail blast and the messages are restricted to 140 characters. This means the correspondence is typically not much more than 25 words.

The same survey reports that 44.9% and 43.8% of advisors use LinkedIn and Facebook respectively.

“The low use of Twitter may be a reflection of its low value to advisors,” says T.J. Gilsenan, principal of Advisor Web Strategies, which helps financial advisors to develop Internet marketing plans.

“I’m not sure advisors see enough relative value in social networking — especially Twitter,” he says. “Put another way, what is an RIA is doing today that if he did less of and more tweeting, his firm would be better off? My experience suggests that Advisors don’t have much unallocated time in their days. If they are going to tweet, or anything else, chances are they will have to do less of something else.”

The relatively low adoption of these popular social media sites reflects the hidden costs of partaking, according to Les Abromovitz, senior consultant for National Compliance Services, Inc.

“RIAs must implement policies and procedures governing the use of social media and they may be reluctant to incur this expense,” he says. “Furthermore, Rule 206(4)-7 under the Investment Advisers Act requires SEC-registered advisers to designate a chief compliance officer to administer their compliance policies and procedures and that person must be someone with seniority and clout within the organization.”

Social media can burden a compliance officer, Abromovitz adds.

“The use of social media increases the work load for compliance personnel,” he says. “The firm’s chief compliance officer or a designee may need to pre-approve communications using social media. The RIA must also be able to retain these communications in accordance with the Books and Records rule.”

Gilsenan agrees. “Imagine LPL’s compliance department having to review every rep’s tweets, Linkedin profile/ posts, Facebook profile/posts, etc. prior to posting,” he says.

Les Abromovitz: The use of social media increases the work load for compliance personnel
Les Abromovitz: The use of social
media increases the work load for
compliance personnel

Still, there may be generational forces at work to explain a slow adoption rate in an industry comprised predominantly of people who are 50 or older, Abromovitz says.

“At the risk of generalizing, it is usually younger investment adviser representatives who are quicker to use new forms of social networking.,” he says. “In addition, younger IARs may not be in a position to change the firm’s culture as it relates to marketing and advertising.”

It would be hard to argue that [age] does not play some role – especially when 80%+ of Twitter users are under the age of 30.

There may also be good reasons why older advisors are putting the kibosh on social media.

“I believe RIAs will be much more willing to utilize social media once the SEC sets forth clear guidelines for its use,” Abromovitz says.

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Oliver Skinner

Oliver Skinner

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