The fund industry goes social | The conversation in Luxembourg

“Social media isn’t a choice for the fund industry; it’s a necessity.”

Lots of colourful thumbs upIf there was one message from social media panel at the ALFI Global Distribution Conference (in association with NICSA and the Hong Kong Investment Funds Association), that was it. I had the honor to be a member of that panel, together with Baldwin Berges of Silk Invest, Mary Hunter Hieronimus of Thomson Reuters and moderator Troy Bankhead of KNEIP.

Here are my responses to questions posed by Troy and members of the audience during the session:

Q: It’s hard to talk about social media in the fund industry without talking about regulation. What does the regulatory environment concerning social media/marketing look like today for asset managers?

Theresa: You could say that the regulatory picture is very simple: regulators on both sides of the Atlantic have decided that social media is advertising and are subject to the same rules. That’s simple because the advertising rules have been around for a while and everyone’s familiar with him.

However, social media raises complications that traditional advertising doesn’t.

First, with social media, everyone in the company is a member of the advertising department, since anyone can send out a message about the firm or its products with a very wide circulation. But what happens if Joe in the accounts department sends out a Tweet along the lines of, “Met portfolio manager of emerging market fund today, and he’s great. Everyone should buy this fund!”

It’s a potential compliance department nightmare – and it’s not clear whether firms can mitigate their regulatory risk through training or other programs.

Second, many of the features of social media don’t fit particularly well with the advertising rules. Perhaps the most notorious example of this is the Like button on Facebook. It’s an essential feature of Facebook that allows you to see updates from the pages that you Like.

But what happens if a customer Likes an asset manager’s Facebook page? Would that be a testimonial, which is prohibited by U.S. regulation.

And what about Likes by employees? Could they be considered recommendations or endorsements if they’re business-related?

The general feeling is that regulators aren’t concerned about either of these situations if they’re innocent – but no one’s certain exactly what the rules are. Unfortunately, regulatory guidance so far has focused on the worst case.

As a result of the uncertainty, 49% of U.S. investment advisors surveyed recently don’t allow employees to use personal social media accounts for business purposes.

However, that’s down from 54% last year, which means that firms who prohibit social media use are now in the minority.

Q: So that’s the regulatory risk. Are there any risks to not using social media?

Theresa: The industry risks losing touch with its employees and with its customers.

Younger employees, in particular, are interested in having access to social media at work. One in 3 Millenials thinks that the Internet is as important as air, water, food and shelter. (I’m not in that camp, but I think that it’s as important as a telephone in a hotel or vacation rental.) And 2 in 5 Millenials would take a pay cut to be able to use their own device and social media at work.

On the client side, we know that 90% of financial advisers have social media accounts, and half of them use those accounts daily to interact with their financial advisers.

Even more importantly, roughly 1 in 3 high net worth individuals is already using social media for personal finance and investing purposes.

We’ll continue the conversation in part 2 of the post. . .

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