Ten years on from the advent of Facebook and with platforms such as Twitter, Google+ and YouTube looming large in terms of active user numbers, social media has gone beyond a fad or a phase and has become habit for many people. Ian Stott, Client Services Director at the Consulting Consortium, provides us with a very comprehensive set of tips for firms that want to promote financial products in this new area.

Ten years on from the advent of Facebook and with platforms such as Twitter, Google+ and YouTube looming large in terms of active user numbers, social media has gone beyond a fad or a phase and has become habit for many people. Ian Stott, Client Services Director at the Consulting Consortium, provides us with a very comprehensive set of tips. 

The financial services industry has been criticised in the past for being slow to take advantage of social media, but uncertainty regarding regulation and the perceived riskiness of it all has led to a degree of cautiousness. It can also be argued that although social media may have a place in large institutions such as banks that have the structure and financial resources to follow an effective strategy and also manage compliance and business risk, the value and return on investment for smaller financial firms is less clear.

The FCA’s recent consultation paper (GC14/6) may seek to make existing rules surrounding social media promotions a little clearer, but the rules are so uncompromising and rigid that it is difficult to create a promotion that works well from a marketing perspective. Any contravention of financial promotion rules can result in a criminal offence that carries up to two years imprisonment and an unlimited fine, so it is of paramount importance for every firm that wants to be involved to decipher the rules and consider how it can take advantage of social media platforms to drum up business while also remaining compliant. 

The proposed rules: complicated stuff

Firms can take some comfort in the fact that the FCA has not produced its guidance consultation paper in response to any particular non-compliance in this area and we have yet to see any enforcement action or fines. However, any firms that are hoping for a 'how-to' guide that teaches them how to slip social media into their strategy compliantly are going to be sorely disappointed. Firms are expected to digest the rules to do with financial promotions and consider how these apply to social media. Anyone that has read the FCA’s so-called handbook will know that this can be complicated stuff.

What is clear from the 'guidance consultation' is that all financial promotions, even those with stringent word/character limits, are governed by the same rules set out in the Handbook. The overriding financial promotions rule is that communications have to be ‘fair, clear and not misleading’ and that customers ought to be receiving products and services that perform in the way they have been led to expect. 

The protection of HNWs

The FCA is most concerned with ensuring that firms are putting customers at the heart of their business practices and that the market operates in a way that promotes fair competition.

Financial products and services are often complex, containing concepts, terminology and structures that most consumers do not come across everyday. This is why it is especially important in financial services for information to be clear and understandable and for promotions not to be misleading. The FCA’s ultimate aim is to raise standards to empower consumers to make decisions they can feel confident about.

Before a firm decides how to promote a new product or service through advertising, it is important for it to select the appropriate target market and then design the product or service for it, rather than the other way around. It is wise to conduct market research to find out the needs of designated target groups to ensure that it reaches the consumers for which it was meant and, crucially, not those for whom it is not suitable.

The regulator suggests using software that enables advertisers to target particular consumer groups precisely. Many social media platforms hold valuable demographic information that firms can use to target their promotional and/or advertising efforts. Although this 'manages the risk' somewhat, firms should also be aware of the limitations of this method, such as limited options for criteria and the likelihood that they will be seen by people who are not being targeted. In order to manage this risk further, firms should ensure that each advert is clear and provides enough information to allow the intended target to work out whether or not it would meet his needs or circumstances.

Invitations and inducements

The financial promotions rules apply where there is an element of persuasion in the content. According to the FCA, “...any form of communication (including through social media) is capable of being a financial promotion, depending on whether it includes an invitation or an inducement to engage in financial activity” and applies to investments, mortgages, insurance, banking and consumer credit. Some examples are obviously persuasively worded; many are less clear.

Consider the following Twitter examples which provide a signpost to a website containing a financial promotion:

Example A: ABC Mortgages – ‘To see our current mortgage offers click here: [link]’

Example B: ABC Mortgages – ‘To see our great mortgage offers click here: [link]’

Example C: ABC Mortgages – ‘We have the best mortgage offers in the UK. Click here to take advantage now! [link]’

Only example A is compliant as it is simply a factual signpost to the company’s mortgage offers and does not contain any inducement to engage. The other two contain persuasive language that requires an accompanying risk warning such as: ‘Your home may be repossessed if you do not keep up repayments on your mortgage. Early repayment charges may applicable’. The promoter could do this by including a link to a website with a disclosure notice; this would keep things within the 140 character limit. However, as can be seen, examples B and C have different levels of persuasiveness, with B not seeming particularly compelling. Companies ought to consider the ways in which they use language and should put themselves in the shoes of the consumer. They should say: "Does this incite me to engage in investment activity?" The rule of thumb is that if it is a mere statement of fact containing no emotive language, it should not be viewed as a promotion.

This does not mean that firms are not allowed to promote products and services; it just means that they have to carry the associated risk warnings so that a consumer who views only that promotion is supplied with the necessary information regarding both the pros and cons of a product or service.

Tips for firms

1. Have a strong strategy before commencing

The FCA 'guidance consultation paper' sets out a number of wider expectations for firms that undertake promotional activity on social media, including the requirement to have a clear process in place for signing off digital communications and the ability to keep adequate records of communications across social media channels.

Because of the regulator’s focus on all aspects of a firm’s behaviour on social media, it is important to establish clear guidelines to govern the creation of content, the approval process, consumer interaction and monitoring. It is important to do this in conjunction with measurable goals and targets for the activity, whether in terms of growth or interaction. By doing all this prior to taking any action, firms find it far easier to monitor the success of their efforts and adapt them as their relationships with their customers develop.

2. Be aware of what is being reposted and/or shared

Reposting, either through ‘sharing’ on sites like Facebook or LinkedIn, or ‘retweeting’ on Twitter, is also a regulated act which the FCA will approach in two ways:

(i) If the recipient of a communication (client/ prospect etc.) shares a firm’s message on social media, the firm remains responsibile for the compliance of the message because it is the original communicator. Deliberations about whether the message would remain compliant if it were to end up in front of a non-intended audience should take place at both the content-creation and approval stages.

(ii) If a firm retweets a customer’s tweet, the responsibility for ensuring compliance still lies with the firm, even though it was not the originator of the content. It is natural to want to share positive reviews with the wider network, and to a certain extent firms still can, as long as the original message is compliant with the financial promotion rules.

Consider the two examples below:

Example A: Customer 1 - ‘Everyone should check out Adviser D, he just got me a 450% return on my investment!’

Example B: Customer 2 – ‘Thanks for the brilliant service today, Adviser E. You really helped make my options clearer!’

While Customer 1 has every right to express his satisfaction with his investment in this way, if the firm were to share this with its follower-base it would be in contravention of the FCA’s financial promotion rules because the wording would call for a risk warning and the regulator would also see it as an inducement to engage in financial activity. The second example is not an inducement to engage in financial activity and it would be 'compliant' to share this in the eyes of the regulator.

3. Put sturdy systems and controls in place

One of the root causes of firms making non-compliant financial promotions is an absence of appropriate systems and controls that ensure adequate oversight. Firms should have a compulsory compliance department sign-off process in place to stop themselves from promoting things in a way that does not comply with the rules.

4. Ensure that everyone involved is aware of the rules

It is imperative that all staff, whatever their jobs or functions, should comprehend the implications of not adhering to the rules and have a clear understanding of the firm’s policies for signing promotions off. 

Viability for small businesses

Although certain financial service companies, notably retail banks and price comparison websites, have managed to build a significant online and social media presence, such operations can seem unattainable to small businesses that are always struggling to maintain profitability within an increasingly strict regulatory regime and a changing consumer landscape.

The regulator will not like it if a firms spreads it resources thinly in key areas such as compliance to make way for better use of social media and it does not make good business sense in any case. So what are smaller firms to do? They must focus on the most appropriate channel or channels.

How to focus

Not every social media channel is suitable for every type of business and a firm with few resources is generally likely to have greater success if it uses a single channel effectively than if it tries to undertake a small amount of activity across a range of media that may not be appropriate for either it or its target audience.

It is important for firms to understand how their customers or target markets use each social media channel before deciding if it is the most effective way of communicating with them.

'Process' is the name of the game

Social media can be a fantastic way in which financial services firms of all sizes talk to and maintain relationships with their customers (and potential customers) as long as their financial and personnel resources permit it. However, firms need to be aware of, and adhere to, the strict regulations that govern advertising and promotional communications.

Firms can present regulators with evidence that they are determined to provide their consumers with "clear, fair and not misleading" communications in relation to financial promotions by ensuring that the processes by which they deal with social media, particularly the sign-off and monitoring processes that the FCA requires, are robust. All companies should be mindful that to disregard the FCA’s rules may is to court enforcement action.

* The Consulting Consortium, or TCC as it likes to be known, has been supporting businesses in the compliance and regulatory sectors for more than thirteen years. Its consultants can be reached at www.theconsultingconsortium.com or on +44 (0) 20 3772 7230 or on 0800 9707 754..