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Secret to Success: No Financial Advice

WASHINGTON, D.C.-Looking for the secret to social media success in financial advice?

Don't give any.

Not only does that avoid potential compliance issues with state or federal regulators - it's not what your existing or potential clients are really looking for on Facebook or other social networking sites.

Don't even try to pump a specific product, like a 529 college savings plan. The financial advisors and fund companies "I have seen who are really embracing this are actually steering clear of putting 529 pieces on there,'' said Art Metzger, vice president, advertising surveillance at AIG Advisors at the annual conference of the Financial Industry Regulatory Authority. "They're steering clear of anything like that. What they're really putting on there is sort of human interest stories.''

This can be, in his observation, promoting community events like a charity car wash or donating to cancer research. For Janney Montgomery Scott, a regional financial services firm, it was observing National Armed Forces Day. For Lon Dolber, chief executive officer, of American Portfolio Financial Services on Long Island, it was posting a photo on Facebook of his Hobie Cat sailboat, overturned in a storm, and urging "friends" there to attend a rock concert by his band, the Filthy Crickets, since there wasn't going to be any more sailing that summer.

And for Vanguard Group, the central topic used to promote its reputation as a provider of low-cost mutual funds, investing passively in the components of easy-to-watch securities indices, is ... coffee.

Promoted on its Facebook page and timeline is the At-Cost Café, a mobile van that shows "why costs matter."

The beverage truck made stops in Boston, New York, Philadelphia and Washington, D.C., in March, to get the point across to potential fund customers that markups make a difference to a pocket book.

Its "at cost" mutual funds, it says, are one-fifth the industry average. Just like the coffee it handed out, at 28 cents a cup.

And, oh, yeah, its average expense ratio of 28 cents on its funds just happens to be 20% of the industry average of $1.38.

The rolling coffee shop is what Shayna Beck, head of social media at Vanguard, would call a "social opportunity." It's a vehicle, literally, for establishing new relationships, through a combination of online and, in effect, in-person interaction.

Which, in turn, becomes a business opportunity.

"We want to align what we're doing on social (media sites) with what the business objectives are,'' said Beck. "Educating investors is the number one Vanguard objective.''

Spurred on properly, social media sites can be used to foster discussions among followers on, say, the proper way for parents to set up allowances for their children or figure out the best ways to allocate investment money among different types of assets as you grow older.

But, in the main, Facebook, with 865 million or more users worldwide, is not where you want to put specific information on products or services being offered to the public. That's best kept (and controlled) on financial services' firms main web sites, said W. Hardy Callcott, a partner at Bingham McCutchen who concentrates on regulatory issues affecting broker-dealers, investment advisers and mutual funds.

Discussing a mutual fund on a social media site would require disclosure to regulators and clear tracking of what was posted, he said. If possible, stay away from product-specific discussions, as well.

Practically speaking, it can be costly, as well. If you're posting eight times a day, five days a week, to your Facebook page, for instance, "it can get quite expensive filing with FINRA,'' said Beck. Stick, she said, to basic financial principles or social interaction and away from product-specific comments.

Which may seem counter-intuitive. When AIG Advisors got started, it had 3,600 pieces of pre-approved content ready for its financial advisors to share on social media sites, bought from a third party. Some it filed with FINRA Advertising, just to be safe.

And it expected its financial advisors to be pushing products and services. Of promising things like "guaranteed 14% returns,'' that could get it in trouble.

"We were really nervous about this,'' said Metzger.

But the traffic pulled in was wholly unexpected. "When we started piloting it and we saw what was coming through, we started to ask, 'Are these the right people or are these people from outside the company just syncing up to our system?'''

In effect, the visitors that come to social media sites are trying to size up the financial advisor or fund firm. To see if it's a person or company worth doing business with.