SEI’s Lori White explains how social media platforms such as Twitter and LinkedIn can help investment managers market their business.
The rise of social media platforms like LinkedIn and Twitter has been unprecedented over the last couple of years. LinkedIn now has some 313 million users and in Q2 2014 its revenues rose by 47 per cent to USD534m reported the Wall Street Journal on 31 July 2014.
McKinsey estimates that there is a GBP772bn opportunity for business to use social media.
All of us use social media in one form or another but when it comes to applying it to the workplace, the asset management industry has remained largely apathetic. This would appear to stem from a fear of falling foul of compliance in what has become a tightly regulated market.
One of the pillars of any asset manager’s marketing strategy today should include social media but it’s important to understand the potential roadblocks. This prompted SEI recently to publish a brief on the subject entitled “Stepping in to Social Media”, in which eight tips and considerations are presented for investment managers.
“I think it’s true to say that all asset managers have been reluctant to get into social media. From a compliance perspective, there’s a lot less control over the way information is broadcast and who you, as a firm, are communicating with,” says Lori White (pictured), Marketing Regulation Counsel, SEI. “The reluctance has largely been from compliance officers as they look to get comfortable complying with existing regulation.”
The Financial Industry Regulatory Authority, Inc. (FINRA) published more substantial guidance recently and the Financial Conduct Authority (FCA) in August this year established the Social Media Charter in light of the fact that 71 per cent of employees at financial firms had breached their firms’ social media policies.
Choose the right format and platform
Platforms like Twitter are publicly accessible and free for anyone to use. As a result, any communications on Twitter are regarded as “retail communications” and should be carefully vetted to ensure their appropriateness. LinkedIn, by contrast, offers the end-user more control. They can establish a group and invite a select audience, screening members to confirm their suitability. Such a channel might be used to convey information about corporate events, seminars, share market insights, distribution of white papers. And indeed, provided an employee has a professional – not public – Twitter account, these announcements can also be shared effectively.
“From a compliance perspective it’s very important as to which channel is being used. The way the rules are written, the audience is critical in terms of what level of information and disclosure is required. There are very distinct differences made for an institutional audience, an intermediary and financial professional audience, as opposed to a “Mom and Pop” investor audience. You may not be intending to reach a retail audience but the regulator will ask “Is this clear and balanced as a message that could reach retirees, widows and orphans?”
“That’s where different channels make a difference. With a LinkedIn group you can control your audience and invite only those that you want to reach. That makes a big difference from a compliance and review perspective,” explains White.
Large asset managers have a well-developed social media presence. They often have a huge retail investor base so the way they approach a social media strategy is going to differ markedly to more institutional-focused private asset managers; for these managers, they need to weigh up the pros and cons of using FaceBook, LinkedIn etc; what will the potential rewards be versus the potential risks of running a social media strategy?
Ultimately, it depends on who the manager’s end investors are as to how far they embrace social media.
“Here in the US, firms like Vanguard or Fidelity, which are much more retail-oriented, have a strong Facebook presence. But I think it’s more brand-oriented than product-specific,” adds White.
Categorise your content
Question marks remain over how much information a private fund manager will want to put out to the world at large. One mistake and all of a sudden a manager’s reputation is ruined.
“Private equity and hedge fund managers might only want to use Facebook for corporate branding and culture, philanthropy, that kind of thing. The messaging should have nothing at all to do with fund performance, strategies etc.,” comments Ross Ellis, Vice President and Managing Director of the Knowledge Partnership in the Investment Manager Services division at SEI.
This is a useful rule of thumb when thinking about tailoring content. Social-driven platforms like FaceBook are best used for building a corporate identity. Business-driven platforms like LinkedIn provide the opportunity to take ownership of a particular market strategy or investment style, building content that is more authoritative and thought leadership in tone and content.
It’s best to think about product information on one hand versus high-level information on the other.
“We see some portfolio managers who are interested in social media and who already have, say, 5,000 followers on Twitter. That seems to be effective because they’ve got a captive audience interested in their expertise. They’ll talk about what’s happening in the markets, related strategies that they are employing for their fund. But this doesn’t necessarily mean that such information has to be filed with FINRA,” says White, who continues:
“One strategy we’ve devised in advising clients is making the distinction between firms and products and that helps differentiate content. Registered product-specific messaging in the US has to be filed with FINRA. Market-related content may be regarded as high-level.”
If the social media channel is in the name of the fund, for example, then all of that information would be pulled in to the offering and solicitation around the fund. Whether they do general market commentary or fund-specific reporting, all of that is under the purview of the SEC and FINRA.
“However, if the firm establishes a portfolio manager as the Twitter account holder, and they keep messaging at a high level without crossing over to promote the firm’s funds, that simplifies the regulatory oversight; nothing needs to be filed. That’s one of the recommendations we’ve been making to firms. It guards against the specific advertising of their product,” confirms White.
By and large, any fund-related content that is shared by a firm will need to be filed with FINRA. There is a pre-approval and cost of filing that comes with this. Each tweet covering new fund launches, performance figures – whatever it may be – will add to the overall filing costs. In such circumstances, firms might be better off developing higher level messaging that could perhaps be tied back to other materials being produced; presentations, surveys, white papers.
Create common sense guidelines
Creating social media guidelines for all employees to follow is critical.. Considerations about non-public information, client-sensitive information; these have to be controlled to protect a firm’s reputation. Therefore, it is important to educate all employees on what is personal versus what is considered professional and business-related.
“When you cross that line, there needs to be another level of policies and procedures in place to have those actively using social media for business understand the parameters. The guidance we’ve gotten from the SEC and FINRA so far – the rules around advertising and sales materials – are being extended. It’s not unlike setting up a website 10 years ago. There’s a real reputation risk to firms for not knowing what information is being pushed out. Our guidelines here at SEI are constantly evolving based on the experiences we build from using different social media channels,” comments White.
White goes on to make an important point when developing internal guidelines. Compliance, legal and corporate marketing executives should come together to form a working group to vet any issues that arise from using social media and develop best practices.
“It’s a balancing act. As a lawyer I prefer not to be too constrictive with specific rules but social media guidelines remain a grey area. It’s always a risk analysis of what makes sense from a social media messaging perspective, is it worth pursuing something and what will the likely impact be?”
Provide appropriate training
Training is critical in terms of satisfying the regulators.
Firms must show that they’ve got the controls in place and that employees have been educated on how to communicate via different channels.
“At the employee level, we’ve created web-based training so that everyone can have a basic understanding of what’s personal versus what’s business. Then as groups come up with specific strategies to target social media channels, we – and by we I refer to the legal, compliance and marketing group referred to earlier – train those spokespeople who intend to be the lead communicators.
“It makes sense to have a few key individuals in place who are trained, who understand the value and the risk, and we constantly check back in with those individuals,” confirms White.
“What we’ve found, in general, is that people have Twitter accounts both for personal and professional purposes,” adds Ellis. “Sometimes they will tweet something in a professional capacity without having switched accounts so they’re now speaking as a representative of the firm even though they’re still using their personal account. You need to have mass training for all employees but keep it tight in terms of who the firm elects as spokespeople. Our advice at this stage is that it’s best to err on the side of caution.”
Record Keeping
Record keeping is a fundamental piece, from a compliance program perspective, that has to be put into place before any social media strategy is executed. A number of third party firms have sprung up recently to address the requirement of having to capture and store all social media content.
In the US, FINRA already has an email retention requirement for registered advisors whereby all of a firm’s emails need to be captured for record keeping. The same is now true of social media content. Even if they are being submitted and pre-approved, there is still a separate requirement for record keeping, says White.
“We use a third party vendor whose system basically captures everything. This allows compliance to go in and review all social media communications, including third party content, generated by the firm. It all needs to be available and accessible, just like any other communication put out by the asset manager,” says White.
Third Party Content
Although not unique to social media, the SEC has nevertheless stated that if someone redistributes third party information then they have adopted that content and must therefore take responsibility for it. Any social media strategy must therefore have a careful vetting process and be absolutely sure that copyright infringements are not made. One should also be mindful of the sources of third party content.
“I like to look at who the publications are: if it’s the Financial Times, The Wall Street Journal, these are credible sources. If it’s a blog that we don’t know anything about then we’ll need to do more research on that. People have the misperception that anything on the web is free to grab. The reality is, any third party firm will have terms and conditions for using information; educational material is fine, but in other cases there may be a fees issue,” states White.
Another point to remember: a social media user might have a subscription to a particular source. However, if a link to an article is tweeted, anyone who is not a fellow subscriber to that source will face a dead-end and be prevented from accessing the content. That isn’t a regulatory violation but defeats the purpose of sharing information via social media.
Asset managers today need to start thinking about their social media strategy and consider the above points. Take care to establish sensible guidelines, put the right protocols in place and train relevant staff, establish a record keeping function for all social media content and tailor content depending on the channel and the type of investor being targeted.
“From a compliance perspective it’s important to get the right individuals together, to look at what guidance there is, to see what other firms are doing, and to take a practical approach. It’s time for the financial industry to look more closely at this,” concludes White.
To read SEI’s social media white paper in full please click here
