With 266 million users in North America, the Internet and social media have become a significant part of the financial services landscape.

On Monday Aite Group released a report addressing ways to harness social media tools, such as Twitter, Facebook, and LinkedIn, for institutional financial services use, with particular attention to the regulatory environment. While social media will not make sense in all organizations, Aite admits, more possibilities are opening up as the technology evolves.

Aite’s findings are striking: While 87% of Gen Y (between 18-32 years old) and 82% of Gen X (33-44) are Internet users, a whopping 79% of younger boomers between 45 and 54 are on the Internet. Across all age groups the percentage of individuals who use email is 90% or higher, 20% of younger boomers use some sort of social networking tool and 70% of younger boomers get their news from the Internet.

While the advantages of social media tools are more apparent in retail financial services, says Aite Group, they are gradually being implemented on the institutional side, where social media is perhaps more relevant for the delivery of information than for socialization. “Will this tool become a critical component of business-to-business communication?” the firms asks. “It’s still early to tell, however, there are cases where it is being utilized.”

Yet there are risks, including communication overload, regulatory infractions, and the private nature of the institutional market.

“Social media still has many wildcards: individuals on the sites, their intent of use, interactions between members that may create an unexpected exchange, and a media that lends itself to human error through unplanned or spontaneous communication, all working in an industry with strict but sometimes interpretative regulation,” says Denise Valentine, senior analyst with Aite Group and author of this report, in a statement. “It’s no surprise that many CCOs simply prefer to avoid the issue altogether. With time, however, the industry, aided by technological automation, will develop a means to accommodate behavior and intent through proper procedures and validation.”

This story has been reprinted with permission from Financial Planning.

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