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Regulations slow advances in reaching potential customer base

Larry Whistler hasn't jumped on the social media bandwagon, and neither have most of the Amherst investment adviser's colleagues.

In fact, the social media revolution is largely passing by the investment business.

With investment firms placing tight controls on the use of social media by investment advisers, most brokers aren't using tools like Facebook and Twitter to communicate with their clients.

Restrictions imposed by industry regulators also have slowed the adoption of social media by the investment industry.

"From a compliance standpoint, it's really challenging," said Whistler, the chief investment officer at Nottingham Advisors, an Amherst money management firm. "You've got to be careful about what you say."

Stephen Robshaw, the president of Amherst money management firm Robshaw & Julian Associates, joined LinkedIn last year, but said the main result he's seen is reconnecting with a couple of old friends, rather than attracting new clients.

"In our business, it's more personal referrals," Robshaw said. "It's word of mouth that's more effective."

A survey released last month by research firm Aite Group found that while 63 percent of the 402 financial advisers it surveyed use social media personally, just 35 percent of those advisers used it professionally.

That low level of use is largely because more than half of the surveyed advisers work for firms that have written policies governing the use of social media tools.

Yet the advisers who are able to use social media say it can be helpful. The Aite survey found that 36 percent of the advisers who use social media professionally found it to be helpful in reaching new prospects and 20 percent said it helped increase awareness of their practice.

"Advisers that use social media professionally are believers in its benefits," said Ron Shevlin, an Aite senior analyst.

Local firms commonly use e-mail to send newsletters and investment commentaries to clients, but they generally are drawing the line at adopting social media.

"The limitations the industry is placing on the use of social media to communicate with clients is remarkable at a time when so many of their clients themselves use social media," said Stacey Haefele, the chief executive officer at HNW Inc., a New York City wealth marketing firm that surveyed financial advisers on their use of social media.

That survey found that about 78 percent of the financial advisers polled by HNW said they don't use social media because company and industry regulations make it too burdensome. Advisers who work for independent firms were more likely to use social media than those working for brokerage firms, although two-thirds of the advisers at independents still find the restrictions too burdensome.

Seven of every 10 financial advisory firms surveyed by HNW said they ban the use of social media.

"The firm kind of frowns on that kind of stuff, so we hold it to a minimum," said Alan K. Scheff, the branch manager and managing partner at Scheff Thompson Cress Investment Group in Clarence, which is part of the Raymond James Financial Services network.

Another big stumbling block for the industry's adoption of social media tools is the Securities and Exchange Commission, which regulates the securities industry. The SEC says all broker stock recommendations must be "suitable" for individual clients by measuring their risk tolerance, security holdings, income, net worth and investment objectives.

So a Facebook post or a tweet about a particular stock likely would run afoul of those rules because what's good for one investor might not be in the best interests of another in a different financial situation.

Further complicating the use of social media are rules from the Financial Industry Regulatory Authority, the non-governmental body that oversees almost 5,000 brokerages.

The authority requires companies to supervise and store all broker-client exchanges, such as e-mails and Twitter posts and Facebook updates. Brokerages also are required to approve most postings on websites.