Most financial services companies lag far behind mainstream consumer businesses when it comes to embracing social strategies for client engagement.
There are three main reasons for this:
1. Compliance dominates the social conversation in financial services because it’s wrongly perceived as the greatest risk.
Non-compliance with the many laws, regulations and guidelines governing financial services businesses represents serious risk and potential cost to many companies. On this, we agree.
We could probably also agree that compliance ought to be a means to an end – not an end in itself. However, the tail seems to be wagging the dog when it comes to the discussion of the compliance risk posed by social networking in many financial organizations.
For the compliance department, the greatest threat posed by social networking is the risk of non-compliance. Yet, smart business leaders and communication professionals recognize a greater threat posed by social media: the risk of becoming irrelevant if your organization and its field staff are not socially literate, and effective and engaged social networkers.
Being non-compliant in some of your social networking communications is an undesirable, but manageable business risk. On the other hand, being ignored in social networks will at best damage your credibility and competitiveness and at worse become a disruptive force that undermines your very business model.
2. The risk aversion culture in many financial services organizations is detrimental to competitiveness.
A culture of risk aversion has taken root in many financial services organizations.
The chill of non-compliance combined with an increasingly regulated business environment tends to produce marketing departments whose primary objective is not to make the company more competitive, but to be the guardians of brand compliance.
In these organizations, brand ceases to be a framework for inspiring differentiation and engagement in the marketplace, but instead becomes an asset whose value must be defended against all risks or attacks.
This leads to lots of talk about “best practices” and in-the-box thinking by people who are neither empowered nor incented to do anything that rocks the boat. (See Which best practice is ruining your business in HBR.)
But the irony is this: radical risk aversion has it’s own risks. (See: The perils of being a social media holdout.) That’s because there’s risk at both ends of the competitiveness spectrum: leaders assume the risks of being the first to try something, while laggards face the risk of being left behind by their peers.
The result is a pronounced, though often unspoken, preference in financial service organizations for being smack dab in the mediocre middle, buffered from the risks of either leading or lagging.
But no one ever gained competitive advantage by hiding behind “best practices” and averting all risk. You must assume risk in order to reap the reward. Such is the case in any business.
No one is advocating non-compliant behavior or careless risk-taking in how financial service companies embrace social networking. However, if you want to gain competitive advantage in your space, you need to be willing to get out ahead. You need to be willing to embrace social and lead.
And the window for leading is rapidly closing.
3. Aging demographics do not favour new ways of doing things.
The average age of a US financial advisor is 51.5 as of 2012 and 50 percent of all advisors are older than that, according to a report by Cerulli Associates. The senior leadership in many financial services organizations can be assumed to be at least this age and likely older.
These advisors and business leaders are from a different era and social technologies don’t have the same natural appeal as they do for a younger generation of digital natives. They enjoy pressing the flesh and are confident in a face-to-face client meetings. They have a hard time seeing that anything is broken with the way they’ve always done things or how online social networking can enhance relationships.
Moreover, many of these professionals are at or near the latter stages of their careers and have much bigger concerns than their firms’ competitiveness. They are focused on the value of their practices and books of business as their clients enter the “de-accumulation” phase of their wealth building. They’re focused on recruiting the next generation of junior partners and engineering their own exit strategy.
Fortunately, the winds of change are blowing.
Roughly half the workforce will be Gen Y by about 2020 and Millennials are much more comfortable conducting their relationships in online spaces. And as events such as Finovate plainly demonstrate social-local-mobile technology is in the process of disrupting financial product sales and distribution.
The question for any leader in the financial services space is:
Are you doing everything you can to avoid these waves of change from hitting you or are you trying to get out in front and ride them?