In a recent blog article I showed how regular investors are amongst the most active users of social media. Now a series of studies from the US provide further proof that such individuals are integrating media devices, social media and social networking into their lives more than ever before, and increasingly using these tools to compare notes on advisors, funds, fees, strategies and deals.
Institute for Private Investors
The IPI is a club for over 1,100 private investors and 140 professional firms from 18 countries, with four out of five member families overseeing assets of $50 million or more. In May they conducted a membership survey which found that 38% of respondents said they actively participate in social media, such as Facebook, LinkedIn, Twitter, and blogs.
IPI also state that over 50 percent of the online discussions on their member’s forum are about the wealth advisors they use. As Kristi Kuechler, president of IPI, says.
“Members will post questions such as ‘my broker offered me an opportunity for this particular fund or that particular IPO’ and ask other investors if they have any knowledge of the investment. They are not allowed to make recommendations, but a member might ask if others have had experiences with a particular advisor.”
One of the real benefits of such forums is that they can expose poor practices while ensuring greater transparency in the wealth management industry. As a group of highly influential investors, IPI has created a community which comes together online to talk about wealth managers, naming names and discussing the fees and commissions they pay. Kuechler even recalls a recent seminar at which one member told another he thought his advisor’s fee was too high. “The member went to his advisor and got him to reduce the fee,” she says.
Harvard Business Review
According to the June issue of the Harvard Business Review, even in the secretive world of private equity and venture capital, private investors are using social networks. Historically, proprietary knowledge has been considered essential to success in this arena. However, findings reported in the HBR suggest that a study of deal-origination best practices at more than 150 VC and PE firms, shows that some of the top-performing investors increasingly use social media to discuss such valued information. As the report authors state “The key is deal flow. In order to make several deals, investors need to examine hundreds of prospects. Sharing details about their investment strategy gives them access to opportunities that they otherwise would have missed.”
Spectrem Group
It is not just at the ‘Highest’ net worth end of the investment spectrum where these changes are occurring. Retail investors are also using social media more to obtain financial information and investment strategy advice.
A US survey by the Spectrem Group called “Social Media and the Investor” questioned 500 financial decision-makers in households with $50,000 or more in annual income who spend at least two hours per week on the internet including at least one hour devoted to financial pursuits. The findings included:
- 77% of investors who read blogs are likely to consult them for information on new financial products and services.
- 69% of LinkedIn users are likely to consult their LinkedIn networks on investment issues, while 73% would consider joining groups to discuss economic and investment topics.
- 63% of Twitter users would pay attention to investment tweets.
- 46% of YouTube users and 41% of Facebook users would seek investment information from these forums. Social media networks are also popular sources for developing new investment strategies and seeking buy/sell advice.
- A third of Facebook users who were surveyed said would consider using a financial advisor or provider that was recommended by a Facebook friend, a likelihood that increases to 50 percent for those under 35.
As George H. Walper, Jr, Spectrem Group president say “In the future there will be more online financial communities, and this is a good way for an advisor to be forward-thinking.”
Given the growing body of evidence which supports the part that social media has to play in forming investor’s views and opinions, it really is time for the investment industry to wake up to the potential that these tools present for client engagement. So with due deference to my friend from the workshop, might I suggest the industry needs a new mantra
'We don’t just have investors, we have clients'.
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