The Securities and Exchange Commission recently eased regulations regarding the use of social media in investing. The Business Journal put relevant questions to Jennifer Openshaw, president of Greenwich-based Finect, which seeks to navigate social media for investors.
What are some investor trends in social media?
We”™re not using the Internet and social media just to decide what restaurant to visit or to buy a pair of shoes. We”™re in a digital world, and that means investors are now turning to social media to make decisions ”” whether it”™s for a financial advisor, a college savings fund, or an investment product.
So whether you”™re an investor or a financial professional of any type ”” financial advisor, wealth manager ”” you”™ll want to take notice.
Nearly 70 percent of wealthy investors have reallocated investments, or began or altered relationships with investment providers, based on content found through social media, according to Cogent Research.
And these investors want to be connecting with their advisers through social media. While only 4 percent of investors using a financial adviser currently interact with them through social media, a whopping 52 percent would like to. That means giving them updates, tips, even having a live exchange online, perhaps in a group forum.
The next generation of young millionaires ”” those ages 44 and younger ”” are four times more likely to express interest in a blog or tweets from their adviser than older investors and nearly six times more likely to say they”™d like their adviser to be on Facebook.
The world is changing and it”™s driven largely by the next generation and the use of cell phones, iPads and social media.
Will social media change the industry? If so, how?
There”™s no question change is here. You can”™t attend an event in the financial industry without a robust conversation about social media. How can we use it? How can we track employees? How can we do it simply and in a unified way?
We”™ve spoken to about 200 financial advisers and asset managers and heard them say, “We need to do something” with social, but the existing platforms such as Facebook, LinkedIn and Twitter weren”™t developed for their needs, especially given the regulatory rules they work under. That”™s why industry leaders, such as the former head of compliance for Fidelity International, helped start my company, Finect. It was designed to provide the industry a simple yet compliant social media platform ”” a way to use the various social channels in a unified way.
Enabling the industry to use social media will have significant impact.
For financial institutions, it means you can now share a broad range of information such as research, thought leadership, corporate news or product information. And not with a few, but with thousands, even millions.
It also means you can target and reach the right audience more effectively.
Social media is also enabling smaller firms to compete with the big boys. That”™s partly because the smaller firms have managers with broader powers of decision-making, such as whether or not to use social media or what their social media policy might include.
For investors, there are two important trends. The first is that they will have more access to information. This levels the playing field and gives them more of a leg-up on investment opportunities that were maybe previously accessible to more closed networks. On the flip side, however, investors could be misled into the wrong financial products. That”™s where we need to be careful and where I”™d like the SEC to bring focus.
I was in a meeting with a prominent fund company and one person asked: Do we really want to be on social media? They were afraid of disgruntled investors or customers who might tarnish their brand. But the chief marketing officer said, It”™s happening anyway; better that we show our brand by engaging them ”” in a safe and compliant way ”” rather than ignoring them.
Why is the financial industry late to social media?
Three main reasons. The first is that technology hadn”™t yet evolved. But now we see its power through LinkedIn, Facebook and Twitter.
The second is compliance. It”™s a big, time-consuming hurdle in this industry. Financial professionals must abide by rules that now require them to decide who at their firm may write content or where such content should shared; dealing with endorsements and testimonials; archiving online content, and more. It can be mindboggling.
And it”™s particularly challenging if you have multiple employees: Would you ever want your employees out on those social media channels and not be able to manage them in some unified way?
Those are the challenges that have held the industry back.
How is social media changing investing?
Everything is in real-time and there”™s access to more information, including information from financial professionals.
One of the features Finect offers is “Pros on Products,” the ability to “follow” a stock or mutual fund. You might do this because you hold the investment or you”™re considering it. You”™ll then be able to get real-time news, Tweets, and insights from peers that are all specific to that investment. It”™s all in a single location, so it”™s easy.
How does the SEC”™s approval of social media for corporate financial news help and hurt investors?
The SEC”™s recent move to allow companies to post corporate financial news on Facebook and other channels is just another indicator of the power of social media. When you think about it, some of these social channels are far more “public” than their old-fashioned predecessors, such as a press release posted through the newswires or on a website. So, I think this is better. In the past, it was frustrating that you had to be educated about where to go to get information on your investments or specific companies. Now it”™s easier.
The “truth” filters on social media can be absent and stories of false information going mainstream are numerous. Do investors now need fact-checkers?
That is indeed a danger and my greatest concern. Investors need to be extra careful that they”™re talking to credible experts who are saying things that are appropriate and suitable.
That”™s why I”™ve called for the SEC to track information online, to look for trends and to try to catch “bad actors.” That”™s also why I think a company like Finect is so important ”” because it provides a place where investors can connect with financial professionals, get to know them, and see details about their businesses and how they operate. That doesn”™t happen at Facebook, LinkedIn or Twitter; they were built for other, more general purposes.
On the flip side, investors can also find negative information about a firm or advisor more easily through social media ”” if they indeed attempt to search.
Jennifer Openshaw is president of Finect (finect.com), billed as “the simple, compliant social media platform for the financial services industry.” She previously served in the California state treasurer”™s office and was founder and CEO of Women”™s Financial Network, now part of Siebert Financial. She is the author of “The Millionaire Zone” (Hyperion) and a columnist for The Wall Street Journal”™s MarketWatch.
