In a couple of months I will sitting on a panel discussing social media in finance at the annual CFA conference in Montreal. The topic is an interesting one. Just this past week the API asked Twitter to delete some posts containing data they believe to be proprietary. There is no shortage of market moving information that flows through social media before it reaches the general public via the mainstream media.

The market-moving aspect of social media is to me kind of a side show. Much more interesting is how investment professionals can use social media to advance ideas, their firms and careers. In anticipation of our panel I have been keeping an eye out for relevant articles.

Wade Dokken at Financial Advisor reports on a recent study of financial advisor social media use. The white paper indicates that just half of financial advisors use social media in their practices. There are some reasons for the slow uptake Dokken writes:

But it is little surprise that most financial professionals believe social media could be a game-changer for their businesses—if they can find cost-effective ways of overcoming the challenges, such as their uncertainty about how to get started, how to access content, the time commitment and the lengthy approval times for compliance.

The most successful advisors have shown more of a penchant for social media. The same can be said for RIAs who have fewer restrictions on their social media use. One of the benefits of using social media is differentiating yourself from the competition. Michael Kitces at Nerd’s Eye View writes about how advisors can use their websites as a platform to “narrowcast” to a niche audience. As Kitces writes:

In today’s world, media channels are more fractured and splintered than ever before, but fortunately the reality is that the typical financial advisor doesn’t need to reach “everyone” in America. Most financial advisors will have an incredibly successful advisory firm with no more than 75 to 125 highly engaged “A” clients (some with even fewer clients), and it’s not even clear that the typical human being can have more than about 150 “real” (financial planning) relationships. Which means it’s not even necessary to appear on a major broadcasting media channel. All it takes is building your own narrowcasting platform.

The fact is that no one will buy a financial service, like financial planning or investment advisory, from a website or blog. Kitces notes that your outpost on the Internet, including social media, is about “scalable prospecting” not selling. Not only can social media help you getting to know and understand clients it also has some other benefits as well.

Andy Swan writing at ThinkAdvisor notes how we can use social media to stay abreast of news and trends in your industry. One specific way that social media data is being used is to identify companies that are being mentioned favorably online. Swan concludes:

Advisors and money managers need to embrace social media as a positive technology that can help you grow your business, solidify relationships with your clients and gain an edge in the market. By being consumers first, you can focus your efforts on using social media in ways that keep compliance officers happy and your clients impressed.

That is not to say that social media is perfect for every asset manager. Gordon Andrew at Marketing Craftsmanship notes three reasons why hedge funds in particular should avoid social media for now. In addition to the compliance issues involved, Andrew notes that hedge funds need to get their base marketing materials in shape before venturing into the social media waters. The bottom line is that:

All of the combined reasons, rational or dumb, for why hedge funds don’t use social media may best be summarized in this way: as an “industry,” alternatives are simply not ready to use the tactic. Most hedge funds know their limitations, and are correct to resist something they don’t understand or  believe in.

Nobody should get onto social media because they feel they need to. It should be something they can commit to. There is nothing worse than a social media account that has been abandoned or sparsely updated. It screams ‘massive fail.’

The bottom line is this: social media provides investment professionals the means to amplify their message, whatever it may be. In the process they can humanize their image, or in marketing-speak – brand, and become a go-to resource for media and clients alike. There certainly are compliance issues to deal with but there is little doubt today’s social media channels will lead to others down the road. Getting on board now will only make the process easier in the future.

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