Investors are influenced by research they find on social media and its importance will grow as younger players inherit, work and look for opportunities to invest.
According to Cogent Research of the 90% of high net worth people who use social media, 73% spend it on LinkedIn, Facebook, Google+ and Twitter making up the rest. They use social media to inform finance decisions and are considerably more involved in their investments than others.
The report showed a third of affluent investors use social media specifically for personal finance and investing. Importantly as many as 70% changed relationships or reallocated investments as a result of content they’d found in social media networks.
Despite this many sectors with an interest in reaching affluent investors have not integrated social media into business strategy. This is unfortunate because a company that has direct access to the community can tell its own stories. Two thirds of customers also trust a company with a social CEO more and 82% of employees believe a social CEO helps shape reputation.
Right now companies rely on brokers and financial advisors to share their story, which has to pass through many layers. This increases the risk that key information drops out or is distorted by the time it reaches investors. A direct relationship with the community overcomes that barrier.
According to KPMG on-demand information is also empowering wealth management clients to take greater charge of their portfolios and make financial decisions on their own – for better or for worse.
Why companies don’t leverage social media
Companies are not leveraging social media is because senior decision-makers believe its faddish, for kids or a waste of time.
This was understandable in the past. The eruption of social media was visibly associated with teen geekery and an influential narrative took hold of professionals that, albeit inaccurate, persists.
Instead these are some of the facts –
- Founded in 2002 the professional business network LinkedIn is 14 years old, has nearly 400 million users from 200 countries in 20 languages.
- Facebook is 12 years old and has 1.25 billion users. In August 2015 Facebook had a billion active users on a single day, a phenomenal figure if you consider the population.
- Eight new people come online a second on mobile or social from around the world, on LinkedIn two professionals join a second, so it’s not about youth.
- Further on Twitter the fastest growing demographic in 2013 was 55-65 year olds, on Facebook this age group jumped 46% in the same timeframe. The latest figures from Pew show 56% of internet users 65 and older use Facebook, up from 45% in 2013. Twitter has seen significant increases in ages 65 + and while younger users dominate Pinterest it still showed an 11-point increase in the proportion of 50+ users between 2013 – 14. The list goes on.
2 billion of the 3 billion online use social media but only 16 – 30% of CEOsdepending on which report you read. Regardless, the figure is overstated because it includes CEOs who have signed up to LinkedIn but don’t use it, the equivalent of going to business lunch and standing in the corner.
That lack of understanding or interest about social media means a business does not invest in creating the channels to deliver the social interface.
How investors use social media
Affluent investors use social media platforms in particular to:
- Do research.
- Form connections.
- Establish mutually beneficial business partnerships.
This sort of activity typically takes place over presentations or lunches; LinkedIn extend the idea making it the new global, business lunch.
Do the relationships formed here and in virtual platforms matter? Absolutely.
The 2016 Edelman Trust Barometer, which is in its 16th year and in 2015 surveyed 33,000 people from 27 markets on trust, has recorded a decline in trust in institutions and leaders over many years, 2015 an all-time low. There has been a slight increase in 2016.
The financial sector remains the least trusted sector. Technology has contributed to some increases in confidence with electronic and mobile payment systems garnering more trust (69%) than the industry overall, an opportunity if new innovations are managed well to build trust. Because of the high degree of trust in these payment systems established players face multiple challenges (or opportunities) from innovators like Nice Systems, Square, Dwollaor GiveDirectly that funnels charitable donations to developing countries via smartphone. Although banking remains highly regulated, competitors are biting into the edges of what was once exclusively a banking domain.
While we don’t trust institutions, the barometer shows high and growing trust among peers. Personal recommendations have always been important and itmakes little difference whether they are physical or virtual provided they are from real people.
Chart from Edelman Trust Barometer 2016.
Edelman shows 2 of 3 most used news sources are peer-influenced. 75% of people say a conversation with a friend influences a decision about a brand and almost 60% of people have acted on these recommendations, regardless of ‘where’ they were received. At work, technical experts and employees remain more trusted than leaders. Furthermore, 70% of people want the CEO of a company to be personally involved and visible in discussing a company’s financial results and astoundingly 80% want to hear their personal views on social issues (I sense corporate affairs heads fainting).
Billions of social conversations influence choice and the emergence of comparison pricing and rating sites further entrenches their value. 72% of consumers trust real online reviews as much as personal recommendations.
Used well these platforms can help expand networks and bring people with mutually beneficial interests together.
Companies with an interest in influencing investors need to consider:
- What information they have or should produce and where to publish it.
- How to extend connections with readers or those who engage with their company into other spheres, including face-to-face, which remains important.
- How to identify and leverage new business opportunities.
How the financial services sector uses social media
A social media strategy allows a company to tell its story, strengthen its brand and build a strong and engaged community responsive to company information. And it makes a difference.
In the financial services sector the Cogent report found that 46 percent of investors who used social media did not have a financial advisor, 52 percent said they would connect with an advisor through social media.
From a brand perspective, a further 28 percent of investors said they would see a social financial company as “innovative” or a “leader in the industry”.
So how are we doing?
- United States: in the US, most Fortune 100 companies (although not CEOs) use social media and according to LinkedIn in 2013, all executives from Fortune 500 companies were members of LinkedIn.
- United Kingdom: the FTSE100 Social Media Index shows 86% of FTSE 100 businesses used LinkedIn for communications strategy. Only 7 of the FTSE 100 CEOs are active on Twitter
- Australia: research by Web Profits on social media activity of Australia’s top publicly listed companies found almost half don’t bother and there are onlya handful of CEOs.
Across the industry though, awareness and use is growing.
For example, a study conducted in 2013 by Beaton Research and Consulting for Zurich on social media for financial advisors showed a ‘123% growth in advisers’ use of Twitter since 2011 and a 74% growth in the use of LinkedIn.” (Arguably off a low base.) Putnam-FIT Consulting Survey of Financial Advisors’ Use of Social Media said nearly half of advisors using social for business acquired new clients as a result.
So how are they using it?
Many companies are successfully using LinkedIn to raise profile and reach specific targets.
- Zurich built a thought-leader campaign around its Head of Financial Institutions, which delivered a strong flow of high-value sales leads and a click-through rate three times the LinkedIn average.
- Derivatives exchange Eurex used a global social media communications strategy on LinkedIn to gain exposure to 800,000 finance decision makers.
Because it is a professional hub LinkedIn can be used widely across industries for thought leadership, brand and reputation development, business growthand social selling.
A report on effective social media practices by 90 financial service firms found 92% of those tracked had a Twitter presence.
- Vanguard provides tips on investing and retirement and has 60,000 Twitter followers.
- Charles Schwab is the only brokerage service with a dedicated customer service Twitter account.
Several banks use secondary Facebook pages for philanthropic causes, Chase Community Giving being one of the most popular, with 3.3 million likes.
Some firms are well and truly across multiple channels, American Express has three Twitter accounts and five Facebook pages, a Small Business Saturday page and a corporate American Express Facebook page with 2.4 million likes.
One cutting-edge initiative I like is Mastercard’s use of paid crowdsourcing to find the ‘most innovative, impactful, and sustainable way in which a financial service provider puts its “clients at the centre” in order to promote financial inclusion for poor people living in the world’s developing countries’.
There’s also now a social network for traders, eToro, that allows average people to follow and copy the market moves of top traders and claims to improve returns by as much as 10%. (I am mentioning it, not recommending it.)
Social media information (and misinformation) flows rapidly
Social media is not just an adjunct to marketing, it can shift markets. A study published in Nature suggests social media sentiment may even be capable of leading markets in some circumstances, we will have to see if this plays out. However, the direct impact on markets is already well established.
For example, in 2013 the share price of Whitehaven Coal dropped 6% after a fake press release from activist Jonathan Moylan claiming to be from Australia’s ANZ bank overturning a recent loan lit up the networks.The hoax was later confirmed but not before $314 million was wiped off the share price and the company was placed in a trading halt. (There were other considerations including reporting of the story by news outlets without source checking with the ASX.)
Moylan was found guilty by the Australian Securities and Investments Commission (ASIC) for misleading and deceptive conduct. Whitehaven was not a standalone case, the trading of Macmahon Holdings was halted when hoax emails prompted takeover speculation, and retailer David Jones was also the subject of a false takeover bid.
In 2013 in the US stocks plunged temporarily when an announcement about abomb at the Whitehouse was made via the Associated Press (@AP) Twitter account, which had been hacked. Twitter suspended the account and although it was handled quickly reports suggest over $20 billion worth of stock changed hands during the brief trading hiccup.
While market rumours are nothing new, social media means information (true or false) can spread fast and reinforces the importance of having a strategy that can be activated quickly to minimise damage and restore market confidence.
The Australian Stock Exchange updated its guidance on disclosure in 2013, advising companies to monitor online for sensitive information and suggesting company secretaries should consider the impacts of social media with respect to risk. The Australian Competition and Consumer Commission (ACCC) has also said businesses must monitor platforms and have 24 hours (or longer for small businesses) to act on misleading information.
In 2013 the US Securities and Exchange Commission (SEC) authorised the use of social media for company announcements (with conditions). The SEC and Financial Industry Regulatory Authority (FINRA) have also said there’s value in social media as an educational tool for investors including to prevent fraud.During a sweep of 23 firms FINRA found only 16 allowed their sales force to use social media and typically only for pre-approved static content.
Given the potential for market impacts, Bloomberg and Twitter signed a data agreement last year allowing Bloomberg to incorporate real-time information into workflow to help customers uncover early trends, breaking news and sentiment shift that could signal changing market conditions.
Many senior executives look at themselves and peers and conclude that since they’ve succeeded without social media, it can’t be that important. While that may have been true in the past, this is about what’s coming over the hill. The billions of new consumers on the market right now have never lived without social media. They are a social-first generation and will expect to find you on these platforms as a default and not because you’re a cutting edge brand.
Do you really want to risk not being there or giving a competitor that advantage? As I discuss in my book there are simple, effective tools that companies can implement straight away that will help them leverage those opportunities.
Social media adoption rates continue to grow across the board and in highly targeted groups like affluent investors it is expected to grow as Gen X and Gen Ymake up a growing portion of the affluent population.
According to Cogent 10% of all affluent investors are under 30 and yet lack basic awareness of financial institutions such as mutual fund companies.
While Millennial and Gen X investors represent only 37% of affluent Americans, they comprise a majority (55%) of exchange traded fund owners. Investor Brandscape found investors under the age of 30 were nine times more likely to develop relationships with asset managers via social media than the over 30 group. 84% of Millenials don’t trust advertising. What do they trust? Content that is generated by other users like them, 50% more than any other form of media.
Additionally, they were twice as likely to depend on advisors for recommendations because of their lack of experience.
That’s an opportunity for companies willing to reach out and provide the research, advice and relationships they want, where they want it.
Industries will need to rethink the relationship with social media and how it can be used strategically to:
- Capture sentiment, uncover trends.
- Share information, monitor misinformation.
- Form relationships with suppliers, clients, employees, shareholders.
- Provide customer service.
- Enable collaboration, philanthropy.
- Drive trust, reputation, marketing and sales.