Based on what I’ve read in surveys, online groups, and also my discussions with other professionals, the biggest obstacles to accepting social media and more collaborative technologies in the financial services industry are risk management and compliance concerns.
Financial services firms, a group beleaguered by the recent economic crisis and chastised by the public for being reckless risk-takers, face a steeper road to integrating social networks in their business models. It stands to reason that these firms don’t want to increase their exposure to more reputation risk in an era when they’re still piecing together the fragments of their broken images.
Researchmag.com published an article in March 2010 that really speaks to the importance, concern, and lack of consensus regarding social networking’s role on Wall Street:
Rapid change, lack of standards and controls, inexperience on the part of senior management and concerns over abuse all play a role in Wall Street’s reaction to the explosion of social media.
As social media expert Kip Gregory, principal of The Gregory Group, puts it: “Who could blame any firm operating in a regulated industry for taking a cautious approach in the face of all that? Especially in financial services, which is at its core an industry built around the management of risk. The question is: How do you, as a competitor in this business, choose to respond to a clearly shifting landscape?”
Indeed, we live in a time when the word “risk” connotes anything but opportunity, particularly when used in the same sentence with any major financial firm’s name. It’s almost surprising that it hasn’t joined the likes of other four-letter words shunned from use in mainstream vernacular.
Yes, risk is public enemy number one right now. It’s the thing to fear, mitigate, and if possible, quash. But as Kip Gregory alludes to above, none of these approaches are likely to be correct in the long-run, and I believe most people understand this.
Researchmag.com also noted what’s happening on the insurance front:
In another move forward, the Insurance Marketplace Standards Association [is] finalizing… its position on recommended controls and best practices. “We’re trying to rally the troops and recognize that you just can’t have a policy in place that prohibits this,” said John N. Travagline, vice president of compliance for the trade group. “People realize this is something that’s here to stay. We’ve just got to figure out leading solutions — the right way to do this.”
In my mind, the most likely scenario is that financial firms will ease into social media by first adopting limited versions of social networks or by putting control measures in place. A market to meet this need is already forming. Examples include a service called Social Sentry recently announced by Teneros, Inc., which will attempt to monitor workers’ use of social networks and generate alerts if they say something of concern to the company.
Matt Weil, president and CEO of Teneros, said the goal of the service is not to monitor personal conversations but to find out whether employees are disclosing sensitive corporate information, such as financial figures, personnel data or trade secrets.
It will be interesting to see how such services are received by the employees of companies that utilize products like Social Sentry.
To say the least, this will be a challenging environment for the foreseeable future. I would be interested in hearing your thoughts and impressions of how this is going so far in the financial services industry.
[Photo by wallyg via Flickr]