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SOLVING THE SUITABILITY PROBLEM IN SOCIAL MEDIA

In some cases it's possible. Melissa Callison of Schwab says some advisors are setting up private groups, the suitability of whose invited members has already been assessed. An advisor might announce that he's hosting a seminar on technology stocks and feel comfortable with making recommendations to an audience that already has been vetted to receive such information. The vetting would follow know-your-customer processes – only potential investors that are known to the advisor by their risk profile, investment experience, and wealth would be invited into a group, in which recommendations suitable to their profile might be offered. A similar approach has been used in the context of offering private placements through a website to prescreened investors.

Some advisors may consider sharing content for broader audiences instead. Educational content is the base line focus for social media by most advisors today – and it is aimed at starting a conversation that leads to engagement on an individual basis, that can in turn lead to a relationship that results in a fee paid by that client. The goal of this use of social media is to create demand among individual investors for products or services that, historically, have been available over the phone.

Social media can be used to attract potential customers to sample research ideas that are offered on a subscription basis. The subscription service is fee-based, of course, so that the ultimate business model is based on access to a protected website or e-mail updates. The subscription model is not one that allows for recommendations tailored to a specific individual, but it can be tailored on a self-selected basis by category of investor.

Encouraging and facilitating conversations among clients about investment activities on blogs is an activity advisors need to think about. Those conversations help generate engagement between advisors and investors, engagement that can deepen relationships and broaden the pool of potential clients.

Advisors, however, still are liable for the activities on their blogs, and that includes inappropriate comments – endorsements of a stock pick, for example, or testimonials about an advisor's abilities. Advisors are responsible for these comments, even if the advisors aren't the ones making them.

 
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