Early adopters of social media, RIAs are growing disenchanted with its power to drum up new business

Advisors must become better marketers before they can optimize social media, experts say

Thursday 12.29.11 by Dina Hampton

At RIABiz we have a pretty good perspective on social media in two senses. We are partially a form of it ourselves because we are blog-like, share photos of faces and have an interactive component because of our comment sections after articles. To the extent that people read us, it is because we have numerous people dedicating their lives both to doling out piles of fresh, carefully considered content and to keeping our technology working. How much does it help our traffic to have the Big Three of Social Media out there? It rarely generates more than 1% or 2% of our traffic. Yes, we Tweet ineffectively and have no Facebook or Linked In strategy. But there you have it.

Registered investment advisors have embraced the world of social media earlier and with more zeal than their competitors in the last couple of years. But as a result, they are more quickly discovering its limitations. See: Social media: There’s a bigger mistake you could make than offending the SEC.

About 55% of RIAs used social-media sites professionally in 2011 as compared with 47% of all financial advisors, according to a recently released Aite Group study that surveyed of 437 U.S. RIAs, IBDs and wirehouse brokers.

But of that segment of RIAs, the vast majority is finding that it is not the magic bullet they were hoping for in growing their practices. See: Five changes to expect in social media in 2010.

“RIAs lead in terms of usage — and disenchantment,” says Ron Shevlin, co-author of “Financial Advisors’ Use of Social Media 2011: The Bloom Is Off the Rose.”

“A quarter of RIAs reported reaching new prospects, but less than a handful — 3% — said they’ve increased internal productivity and revenues and fees,” he says.

More leeway

LinkedIn is the social-site tool of choice for RIAs, with 61% reporting using it on a regular basis. That’s followed by 21% who use Facebook, 13% for Twitter, 8% for YouTube and 5% who blog.

One reason that RIAs lead the way in social media may be that they’re not as constrained by compliance strictures as their IBD and wirehouse competitors.

“Compliance is still an issue for RIAs. But by virtue of being independent, they’ve had an easier time establishing policies than wirehouse brokers,” says Shevlin. See: FINRA guidance may help RIAs avoid social media blunders.

Nikki Chicotel: We haven't found social media to be a good use of our time.
Nikki Chicotel: We haven’t found social
media to be a good use
of our time.

Gummed to death

But compliance is still an issue. Nikki Chicotel, principal of Private Capital Management Associates LLC in Half Moon Bay, Calif., has grown disenchanted with promoting her firm by publicizing her message and the firm’s expertise online.

“Social media takes all the teeth out of anything we wanted to say,” says Chicotel. “With the amount of time and thought it takes to write something interesting, by the time it runs through compliance screens and with all kinds of disclaimers, it becomes pabulum. My target market isn’t going to read a general article. The more specific you get, the harder it is to be compliant. With a team of four, we don’t have the resources.”

Private Capital publishes an online newsletter and a blog. Chicotel and her colleagues have individual LinkedIn profiles but no company listing and no professional Facebook presence.

“If I have $5 million, I’m not going to be looking for an advisor on Facebook but a [prospective client] might be looking on LinkedIn to see who their peers are using,” says Chicotel, whose firm has $70 million assets under management.

Aside from keeping in keeping in touch with clients, “We haven’t found social media to be a good use of our time. It doesn’t generate business,” she says.

Instead, Chicotel is concentrating on the firm’s website, which was recently overhauled, and beefing up its client research.

“We like quick blog posts. Our website is effective. Next year, we’re surveying our existing clients to find out what they like about us and why they stay with us. We’ll take that information and tailor the blog and maybe make a Facebook page. We haven’t abandoned social media, but we’re changing [our emphasis].”

The message is the message

Chicotel is on the right track, according to Shevlin.

“Social media has been oversold as a channel for RIAs to acquire new business. There are 800 million people on Facebook and 300 million on Twitter — but people looking for advisor relationships aren’t necessarily those people. The most effective users of social media already have figured out how to generate valuable content and have established effective tracking procedures for their demographic.” See: 10 top ways to use social media without courting regulatory trouble.

Stephen Boswell: Don't mine Facebook by looking for every CPA, physician and wealthy person in town.
Stephen Boswell: Don’t mine Facebook by
looking for every CPA, physician and
wealthy person in town.

Stephen Boswell, chief operating officer of the Oechsli Institute, agrees that while social media is a potentially valuable tool, it must be properly used.

“The wrong way to go is to try and mine Facebook by looking for every CPA, physician and wealthy person in town,” he says. “Many advisors use social media to say what’s so great about their practice, whereas the best advisors use it to enhance relationships with current clients as well as finding connections with existing clients to grow their business.”

Generation gap

Ryan Shanks: There needs to be some sort of segue way.
Ryan Shanks: There needs to be
some sort of segue way.

Ryan Shanks, founder and CEO of Finetooth Consulting, a consulting firm for advisors and B-Ds, is a big fan of social media and is intrigued by its possibilities for the advisory community. RIAs are not as daunted by new media as other financial advisors, he says, but the learning curve can be steep for them as well.

“The age of industry workers is close to 50. They’ve gotten used to computers, but [these advisors] have been successful in person. They’re used to closing a deal in person. They figure, 'if it’s not broke…’”

Shanks has been surprised at how “Some advisors, even RIAs, we deal with, have told us, 'I don’t check e-mail. We don’t use online recruiting. Send me something in the mail.’”

Clients who are around the same age can feel that way too, which may prove a challenge for younger advisors being groomed for succession.

“A younger person will be engaged in social media. When they’re taking over and buying into firms with an older client base, there will be a communications gap. There needs to be some sort of segue way.”

Enthused as he is about the potential of social media, Shanks acknowledges that when you’re dealing with people’s money, the personal touch — phone calls and face-to-face meetings — will likely remain a constant for some time to come. See: Social media is effective with ultra-wealthy clients but forget the Morgan Stanley approach.

“Financial services have been a little slower to the [social-media] game,” he says. “If I do a tweet and LinkedIn, it’s out there and I’m exposed. When it comes to investment advice, people are guarded.”

Ron Shevlin | Stephen Boswell | Nikki Chicotel | Ryan Shanks

Aite | The Oechsli Institute | Private Capital Management Associates | Finetooth Consulting