How advisors can safely use social media to grow business

6 tips for advisors to responsibly engage on social media

August 16, 2024 5:31 PM

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Retail investors are taking a greater share of the stock market overall. A good portion of them obtain financial guidance through social media platforms like Instagram, LinkedIn, TikTok and YouTube.

A recent study conducted by the FINRA Foundation and the CFA Institute found that about half (48%) of Generation Z investors learn about investing and finances primarily through social media. And Coherent Market Insights predicts the "global creator economy market" size will jump 22.5% on an annualized growth rate to $528.4 billion from 2023 to 2030.

Recognizing this growth, regulatory authorities including the SEC and FINRA have ramped up their industry warnings as well as enforcement actions this year against firms that they said misled investors through posts on social media.

Regardless of the platform, "Fraud is fraud. Don't mislead the public," said SEC Chair Gary Gensler during an SEC Investor Advisory Committee meeting on June 6. "Further, if you take money to promote a security, you must disclose that you have received consideration for the promotion, as well as the amount of such consideration."

Still, a majority of retail investors on social media tend to be members of the younger generations set to gain as part the great wealth transfer — in other words, the people whom most advisors want to capture to grow their business.

"You've got to find people where they're at. You don't have to be on TikTok doing your TikTok dance and having a conversation about term life insurance versus cash value," said Jordan Hutchison, vice president of technology and operations at RFG Advisory. "But you do need to have some kind of web presence in some capacity. And I think having it out there adds a lot of value."

Advisors, regulators and communication experts offered critical tips for engaging on social media. Their pointers are below:

Know your audience and where to start

Advisors don't necessarily need to jump into TikTok as their first social media test, but they do need to start practicing on different digital channels, based on which platforms their target clients most likely visit.

Among 750 business leaders surveyed by the Harris Poll in 2023 on behalf of Sprout Social, 90% said their company's success will depend on how effectively they can use social media data and insights to inform business strategy.

"LinkedIn is a great place to start," said Lizzie Wiley, senior content strategist at F2 Strategy, a wealthtech consultant based in Chicago. "It's a great way to make direct connections to people. You can utilize LinkedIn Inmail messages to send to folks to reach out and say, 'Hey, have you heard about my firm? We've got more of a family feel here.'"

Hutchison added that if an advisor has a niche audience, it's a good idea to start posting about the topics that are most important to that segment.

"Find the topics that are top of mind to those people, that are timely. And that's some of the best advice you can deliver for them," he said. "Because we found from research on decision making, you can teach high school kids everything in the world about a mortgage, but they don't care until it's time to actually get a mortgage."

Disclose, disclose, disclose

The most often talked-about concern that FINRA and the SEC have raised is how firms disclose in social media posts whether the content is a paid advertisement or product promotion or from a hired influencer to market a product.

"The first thing we were looking for was: Can customers tell that this is a paid advertisement? Clearly, it's important for customers to understand that they are viewing a marketing communication," said Ira Gluck, senior director of advertising regulation at FINRA, during a podcast released June 25.

Gluck was referring to what the agency looked for in FINRA's recent "sweep" of over 1,000 social media accounts dating back several years. He added that FINRA looks for firms to have prominent placement of these disclosures in their social media posts.

"Other things we were looking for were how firms were providing disclosure regarding the risks, terms and limitations of things like the free stock promotions, zero commission offers and fractional share programs," he said. "And finally, what other products and services mentioned are offered by the firm? We want customers to know who is paying for the communication and who they should reach out to if they run into problems or have any questions."

Run through compliance early and agree to a strategy

All industry experts strongly agreed that running social media posts past compliance at the outset is key.

"A lot of it really just comes down to having proper supervisory procedures. That's point No. 1. If you do that, you can avoid a lot of headaches," said Robert Sofia, founder and CEO of Snappy Kraken, a digital marketing provider for financial advisors based in Ormond Beach, Florida.

Sofia acknowledged that timing is tricky when social media posts are updating in seconds — much faster than it takes to get approval from compliance on a single post.

"From the time that we ideate content to the time that it gets through FINRA, back through compliance at the firm and out by the advisor, it can be a month, six weeks, in some cases, eight weeks," he said.

This is more challenging when an advisor wants to respond to breaking news discussions on social media. Sofia advises to have a strategy that includes the type of content that can and cannot be said on social media, according to compliance. Also, advisors can post faster if they have prepared content pre-approved by compliance that can speak to timely events, like market dips or Federal Reserve rate movements, for example.

"One of the things we do is we build up certain topics that we know we're going to recycle," he said. "So if the market drops 8% or 9%, now you've got it ready to go. … You can send your content back for review … the disclosures already written for that type of content. And then firms are protecting themselves."

Archive everything

It's critical to keep a record of posts. The SEC and FINRA require financial services firms to archive social media content, which can include official posts, comments and direct messages through business social media accounts.

"We also looked at the firm's supervisory system as it related to communications and the firm's recordkeeping practices," Gluck said about FINRA's recent sweep.

Content should be balanced and transparent

Oftentimes, the biggest deterrent to social media viewers, and consequently, raises red flags to the regulators, is when the viewer feels duped into a sales pitch of a product rather than given general advice about their financial health.

"Revisit the fact that your individual value as a financial advisor comes in making personalized advice for clients," Wiley said. "So, knowing the client and knowing what they need specifically and not trying to make specific product recommendations for a large, large audience."

She also cautioned against adding links that could raise questions from the audience and regulators about whether they are promoting a specific product or company or leading to information that is not factual.

"This takes me to another one: Be very, very transparent," Wiley said. If it's a video post, for example, "You should be making it very clear when something is very much your opinion. And you need to disclose any conflicts of interest that might come with that."

Simply put, Joel Bruckenstein, producer of the Technology Tools for Today (T3) Conference, said that when creating content for social media posts, "Use common sense."

"You cannot give specific advice. You cannot promote a product that you have an interest in," he said. "Use factual information from reliable sources that can be verified to support your statements. When in doubt, consult with your compliance department."

Hashing out hashtags

One single character that has spurred differing opinions? The hashtag — and whether it is a useful tool in social media posts. Some advisors say they simply don't use hashtags, in order to avoid creating more regulatory concerns or attracting the wrong attention.

But Gluck noted hashtags can also be used to amplify disclosures.

"We've seen a number of different methods that firms use to disclose that a communication is paid advertising," he said. "We've seen hashtag ad words like #promoted, #sponsored and the like."