SOCIAL MEDIA AND THE FINANCIAL CONSUMER INDUSTRY
Joshua A. Kallen
Alison A. Huey
2012 FSP Industry Issue Competition
November 1, 2011
Joshua Kallen
222 S. Kendall Ave #27
Kalamazoo, MI
49006
(269) 599-4886
[email protected]
Alison Huey
309 Britton Hall
Kalamazoo, MI
49008-5270
(734) 673-6745
[email protected]
SOCIAL MEDIA AND THE FINANCIAL CONSUMER INDUSTRY
Abstract
Social Media can be used in a variety of ways by financial managers to develop
relationships with clients. There are many benefits to incorporating social media,
including increased business and added value to customers. Many tools can assist the
financial manager in social media including advertisements, low price options, and
comprehensive tools. However, there are several limitations across the social media
programs that financial managers will need to investigate before they invest in social
media. Legal guidelines, as well as each specific institution’s guidelines compose of the
majority of the limitations on creating relationships with clients. Specific information is
given concerning the viability of individual platforms as it applies to financial services.
Introduction
There are many ways financial managers can utilize social media as they look at
applying it to the field of financial consumer experiences. This paper will discuss the
definition, benefits, usefulness, and limitations of social media. In addition, it will look at
specific social media sites and their strengths and weaknesses as it applies to the industry.
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What is social media?
The development of indirect interactions through the use of technology has grown
significantly in the last few decades. Around the turn of the century, a site called Friendster
developed the new term “social media,” a medium of communication in which a
conversation can occur between consumers and businesses. As technology and the market
expanded, ways to enhance connections have improved. Instead of businesses creating
publications and distributing them to customers, businesses can answer questions, fulfill
requests, and reward fans with these additional communication venues. The fundamental
asset of social media has been the ability to link a broad range of audiences together in a
collaborative effort by the way of technology. With the use of the Internet, businesses have
been able to connect with their clients in order to create lasting relationships.
Why bother with social media?
It’s not just that everyone is doing it. Consumers of the modern era of technology
expect companies to go to them with offers, advice, and customer service. The following
topics listed below are all stand-alone reasons why a financial institution should invest in
social media today, so long as proper caution is taken beforehand.

Social Media will increase business. Many consumers use social media on a daily
basis, and finding companies that utilize social media effectively are a big selling
point for such users.

Being disconnected is disastrous. With technology on a path of high growth, it is
absolutely vital that companies take advantage of staying connected in order to
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maintain a high status, as well as stay connected with important individuals.
Recently, Bank of America changed its pricing plan on debit accounts that hold a
certain amount of money. Customers across the nation negatively reacted to this
change and made their voices heard on every social media platform. However, Bank
of America did not respond. If Bank of America had been more active in
communicating with its customers, it would not be suffering the enormous loss from
the social media movement “National Bank Transfer Day”1.

Social Media can add value to customers. Not many customers know all of the
products that their credit union or stock broker offers. With regular posts from
financial institutions, consumers can feel comfortable in the presence of the
company and obtain a better knowledge of the latest offers and services.

Social Media can assist with customer problems before they develop. Many
major banks and financial institutions watch for comments about their company
and respond quickly to solve any problems the consumer might be having. When
much larger tribulations arise, a company may post a notice or press release
through a social media platform to appeal to their clients.

Social Media provides accurate and cost-effective market research.
Throughout the internet, consumers post opinions, suggestions, and comments
about what they look for, like, or even dislike about financial institutions.
Institutions can access this information easily and help tailor their products to the
suggestions of thousands of individuals. Proactive institutions can even create polls
or ask their consumers questions when they are undergoing the decision process.
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Useful tools across all platforms
Company Image: Building a company image in the consumer by having a
presentable appearance through different social media sources is a valuable selling point.
Users can see firsthand reviews about customer service, promotions, and quality of
interactions. An individual that views a large amount of positive reviews and customer
interactions will be more likely to use the company for its own personal services.
Ad Placement: Social media is also an excellent area to advertise, especially if the
organizations place advertisements relevant to the customers across a broad range of
social media systems. Such advertisements that tailor to the interests and needs of a
specific target group have a notable advantage in gaining loyalty than those advertisements
made on billboards or street corners that apply to a wider variety of markets. Social media
also allows for the offer of promotions to clients of a specific demographic.
High Traffic Sites: The effectiveness of a financial institution in finding clients and
reaching clients also pertains to the popularity of the social media program that it utilizes.
The more users of a social media site, the larger the probability that consumers will
observe the information that the institution has provided, thus resulting in a larger
audience and outreach.
Price Point: Though sites require monitoring and updates, the net cost of
investment in social media sites is very low compared to print distribution or other forms
of advertisement. Often the publicity garnered from a social media site is much more
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valuable than traditional advertisement because the posts are interactive, consequently
resulting in more users.
Detailed Information Delivery: Corporations frequently find it difficult to convey
large amounts of information or advice to consumers in a comprehensive medium. Using
social media, there are many opportunities to reference blog posts, documents, maps, or
even share the vision and successes of the company based on the interests of the consumer.
For example, when a financial advisor is working with a client, they can readily find the
available information specific to that user and be able to display or send that information to
the client while also maintaining a chat session and giving recommendations. Social media
allows for thoroughness of information and a broader range of viewable data between the
employee and consumer.
Building Trust and Goodwill: When a firm allows an open platform for consumers
to discuss problems they may have, the greater the ability to build client trust. Companies
can demonstrate their care and professionalism by quickly attending to any problems that
may arise amongst their clients, as well as globally address any problems that are
unsolvable or out of the company’s control. Another useful idea would be for the
organization to post more detailed information about life in the office or other everyday
occurrences in order to can help consumers realize that the company is made of caring
humans and representatives, not a business entity that is impossible to reach. The more
information that a consumer has about the company they are consulting for financial
services, the more trust, knowledge, and loyalty they will put into the institution, and social
media is the channel in which these bonds are formed.
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Limitations across all platforms
Working within legal guidelines: Knowledge of the United States Privacy Act and
the Financial Modernization Act of 1999 are useful in exploring social media for a
company2 . Aside from privacy laws, the company’s region may also have marketing and
solicitation laws that ensure that there are no breaches. Most social media programs can
be considered advertising, in which case Rule 206(4)-1 of the Investment Advisers Act of
19403 applies. This rule states that investment advisors are prohibited from releasing
fraudulent advertisements that suggest possible investments in which the investor could
gain profit or for predicting a predetermined investment offer.
Supervision: A single post on the Internet through social media can have grave
impacts, which is why it is so important for financial institutions to have guidelines in on
the proper usage of social media sites. It is imperative that such companies create a Social
Media Communications Guidance Handbook and train their employees thoroughly before
permitting their use2 . Examples of guidelines can be found online, as well as the proper
education that should be given to employees.
Control: In many social media platforms, it can be difficult to control what
consumers submit or say, whether it is negative or positive. Quite frequently, an employee
may use their personal account for company communications. It is extremely important to
train employees on the separation of professional and personal communication in order to
avoid employee-client discrepancies. This concept especially pertains to situations in
which a personal remark is made on behalf of the company that the company may disagree
with.
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Security: Storing or communicating any personal information online has great risks.
If a password is stolen or is accidentally released, it can generate an enormous liability for
an institution. For this reason, personal information should not be issued over the Internet
unless it is in an extremely secured and controlled environment (such as the institution’s
Website). Furthermore, employees should be trained to exercise extreme caution when
communicating over external mediums. Security is of utmost importance for financial
institutions, as the majority of their work handles client’s private data in order to interpret
that data to find solutions. It is imperative that any organization that hopes to gain the
loyalty of a customer through social media be aware of the risks in protecting their client
from identity theft or fraud.
Information specific to individual platforms
In addition to the usefulness and limitations of all different types of social media,
there are also drawbacks and benefits to each individual source of social media. The table
on the following pages include: social media site examples and their function descriptions,
institutional benefits, useful tools, and site limitations.
Social Media
Type
Examples
Function
Description
Institutional benefits Useful Tools
Limitations
Blogging
Blogger.com,
Wordpress.com,
Software
available for
institution
specific sites.
A weblog is a system
in which an
institution can
submit text-based
updates in a
chronological
fashion. Also,
viewers may
comment on the
updates.
A blog is an effective
place to communicate
large amounts of
complicated
information or updates
about a specific
campaign or
promotion. In addition,
blogs are an excellent
location to explain the
exact reasons why
customers should
choose a certain
company in great detail.
Most blogs have a
comment approval
system: the owner of
the blog must
approve any
comments before
they are publicly
viewable. Most blogs
also have word
processing tools.
Blogs require
institutions to keep
posting (at least
every 3 months) or
it will appear to the
consumer that it
has been
“forgotten.”
Because each blog
is treated as its own
website, it may be
difficult for
customers to find it,
and traffic may be
low.
Facebook
Facebook Pages,
Facebook Ads.
Facebook is a hugely
popular site where
many consumers go
to connect with
friends. Institutions
can create a page,
similar to a blog,
where updates may
be posted. If
enabled, other users
can post on the page
as well. Users can
subscribe using an
opt-in system to a
page’s updates to see
them regularly.
By using Facebook,
financial institutions
can tap into the
massive amount of
users that make use of
the site daily. The
multimedia functions
allow pages to send
information of any kind
to consumers.
Furthermore, Facebook
ads can increase clickthrough and help
promote an external
site.
Facebook Ads are
well used to target
budget
advertisements to
specific audiences.
Additionally, pages
can limit posting on
their space, and
there is potential for
direct, private
messaging.
Facebook has no
post-approval
system. Unless
monitored closely,
comments on a
page can be
negative in nature.
Disabling these
comments can
appear as being
“closed” to
comments.
Moreover, no
record of direct
messaging is built
into site.
Social Media
Type
Examples
Function
Description
Institutional benefits Useful Tools
Limitations
LinkedIn
linkedin.com
LinkedIn is a
networking site for
businesses. It is
common for small
businesses and
salespeople to utilize
the creations of
connections on
LinkedIn. It is also
viable as a selection
tool.
LinkedIn is strictly
businesses and
professionals, and has
extremely high traffic.
There are very few
non-business topics
or communications.
Therefore, institutions
can drive more results
through LinkedIn than
Facebook or other
social networking sites.
Professionals or
clients can connect
with each other and
discuss plans and
evaluate services.
LinkedIn’s page
system is similar to
Facebook, and also
allows for direct
messaging.
LinkedIn does not
contain any records
of direct messaging
through the site,
and may have to
apply a separate
database for such
information.
LiveChat
livechatinc.com
livechatsoftware.
com
(module on
institution site)
On an institution’s
website, there may
be a LiveChat
function. Usually
contracted to a third
party, consumers can
message a LiveChat
consultant to help
them with any
customer service
need instantly.
Consumers appreciate
the quick access and
hours. Especially useful
in sales, it gives an
institution a customerfriendly appeal.
The logs of
conversations,
privacy of data,
direct and instant
conversations are all
positive benefits of
employing LiveChat.
LiveChat may be
expensive to the
point of only being
cost-effective for
larger institutions.
Social Media
Type
Examples
Function
Description
Institutional benefits Useful Tools
Limitations
Mobile Device
Applications
iPhone, iPad,
Android
Applications
Recently,
organizations have
had the ability to
offer an application
for use on a mobile
device. Consumers
can open the
application and view
the information the
institution designed,
including a possible
stock portfolio.
Mobile applications
allow companies to be
tech-forward and help
consumers access their
information more
readily. These tools
also introduce
consumers to all
products advertised on
application, and allow
the company to be
competitive within
their industry.
Applications on
mobile devices allow
for extreme
customization
because apps do
exactly what the
company designs it
to. In addition to
this, multimedia
sections including
interactive graphs
and videos are also
easily included.
Utilizing apps can
also be extremely
expensive, unless
the institution
makes it costeffective by
charging for its use.
Podcasting
Video posts on
institution site,
youtube.com
Podcasts area video
or audio version of a
blog. They are
usually located on an
institution’s site, but
can also be
distributed by email.
Podcasts put a face or
voice with a company,
and explain new
developments or
changes. Also, it allows
for a more personal
communication to
customers.
Universal sites such
as youtube.com
create an accessible
stream of media
across all platforms.
On the downside,
podcasts do not
maintain two-way
conversations, and
can be expensive or
take time to
produce.
Video Chatting
Clients
Skype, Google
Talk
With messaging
services, financial
advisors can partake
in video chat
conversations with
clients.
Video chat adds a
personal touch to the
investor-client
communication. It
allows the consumer to
personalize the
company by having
visual and audio of the
firm’s employee, as well
as maintain positive
connections.
With video chat,
there is the ability to
perform group video
chats and maintain
group contacts
within contact lists.
A webcam and
microphone is
required, and both
client and advisor
need the same
software in order to
properly use video
chatting services.
Furthermore, it
cannot record
conversations.
Social Media
Type
Examples
Function
Description
Institutional benefits Useful Tools
Limitations
Texting
Services
Clubtexting.com,
Tellmycell.com
Users can Opt In to
receive automated
text messages
whenever their
account needs to be
viewed, or if a
change occurs in
their account.
Texting services cause
the institution to be
more competitive by
adding value to the
customer. They also
show that the company
is technologically
competent.
Such services allow
for multiple text
messages to be sent
amongst a broad
audience about deals
and alerts. Also,
automated systems
require little
maintenance and can
be incorporated into
an institution’s
database rather
easily.
Texting services are
less personal than a
voice conversation,
and only 160
characters are
allotted for a text
message, so the
receiver will have
to access
information
through a different
source.
Twitter
Twitter.com
Similar to Facebook,
Twitter allows users
to “follow” the posts
of others. Posts have
a character limit of
approximately 140
characters per post.
Twitter demonstrates
openness and customer
service by creating
effective public
communications with
consumers. There is
the availability of
technical support or
(public) financial
support in an open
setting. Furthermore, it
can view what topics
are trending in order to
better understand the
industry.
One benefit of
Twitter is that
consumers can
reference a page in
their messages. A
person can search by
hashtag (#) symbols,
which are links that
search all posts made
by anyone with that
symbol as well as the
institution’s name.
Twitter posts can
only be a certain
length, and are
limited to the
media they contain.
Moreover, Twitter
does not have a
built-in record of
communications,
and cannot control
the posts of other
consumers or users,
even if positive.
Conclusion
Social media in its narrowest terms is a compilation of all recent Internet-based
technology. Financial services that do not utilize social media on a regular basis to connect
with clients will fall behind on the competition. Social media programs allow financial
institutions to connect with clients and develop strong relationships with them that could
not be done from office visits, phone, or mail interactions alone. In addition to these
valuable connections, social media also allows a company to employ such tools as
advertisements and updates.
Nevertheless, along with social media also come constraints, such as legal
parameters and lack of control pertaining to published content by the client. In spite of
these limitations, the awareness that a financial institution has of its options for social
media programs will allow it to make more effective solutions to solving employee-client
relations. By following the guidelines in this report, social media will be capable of being
properly employed to provide positive, long-term relationships across all financial services.
Footnotes
1. Cheney, Bill, “Bank Transfer Day: The Start of Something Great,” Huffington Post,
November 1, 2011, http://www.huffingtonpost.com/bill-cheney/bank-transferday_b_1069395.html.
2. BITS: Financial Services Roundtable, "Social Media Risks and Mitigation," Zeichner
Risk Analytics, LLC, (Washington D.C.: June 2011),
zra.com/attachments/article/61/BITSSocialMediaRisksandMitigationPaperJune2011.
pdf .
3. "Investment Advisers Act of 1940," U.S. Securities and Exchange Commission, last
amended March 31, 2011, www.sec.gov/about/laws/iaa40.pdf .