FreshNetworks Blog

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New research shows that 70% of affluent US investors have made an investment decision based on information they have learned from social media; 34% use social media specifically to help inform their personal finance and investment decisions. Even for High Net Worth individuals with more than $1m in investable assets, 25% seek investment advice from social media.

The report, from Cogent Research, is based on a survey of 4,000 US investors with more than $100,000 in investable assets and shows the growing importance of social media in the investment management industry.

There is much that investors and financial companies can learn from this and from the growing use of social media as an information source for significant decisions including financial purchases. As in other sectors, we are seeing these affluent investors using social media to verify information they get from other sources as well as to augment it with new and more real-time commentary.

As Remy Domler Morrison, co-author of the report, comments:

Today’s investors’ are scrutinizing ‘traditional’ sources with content and commentary they are finding through social networks, and are becoming much more critical and conversant when it comes to their investment choices

So, just  as we’ve seen with other purchases, investors are integrating social media as part of the sources they turn to when making purchase decisions. Many financial companies are exploring how best they can make the most of this growing trend among investors to use social media advice. For some there are concerns about negative mentions of their brand (and how these should be handled) or indeed about whether the trend to use social media as a research source will reduce the use of professional advisers.

The Cogent report provides two insights that should help inform such firms:

1. Investors recall more positive comments more than negative ones – for the brands investigated by the research, investors could recall more positive mentions than they could negative one. Possibly suggesting a level of filtering out of the negative comments that are not providing useful information for their decisions.
2. Social media is motivating investors to seek professional advice – for those firms that use social media effectively in this space there is the real possibility to generate more interest in advice services from those investors looking for information in social media.

So as we’ve seen in other parts of the financial services sector, social media is providing investors with new sources of information but also provides many opportunities for firms.

texting (Photo credit: meanmachine_ie)

The ability to interrogate and make decisions based on consumer data from social media is a key 2013 priority for European bankers according to a survey from the European Financial Management Association (Efma) and the Fair Isaac Corporation (Fico). The survey of credit risk professionals from 27 European countries found that analysing these data to better understand consumer needs was a priority for 54% of respondents.

The results show the growing importance of social data sets in the already data-rich world of financial services. The  industry is currently in a very risk-averse period, meaning that companies are looking for credit growth primarily among those people that they have the most data on – their customers. However focusing just on your existing customers will not help you to win in the current market as customers are risk-averse too in the current economic climate – they will look for the best product for them and move banks to get what they see as a better offer.

This is where the respondents see the role of social media. Analysing data from these sources can help them to better:

• understand consumer needs
• predict the products and services that will see most demand
• identify where they might find valuable new customers

In the current market, the financial services brand that most effectively integrates these social data sources alongside their existing rich data sets has the potential for a real competitive advantage. The ability to predict and tailor products and services that will attract profitable consumers.

Of course getting there will involve work, as with any activities looking to interrogate and learn from social data you first need to understand what data you have (from your own proprietary data-sets and from social and public sources) and then to explore what you can learn from these. Only then can you consider how your business might benefit and the kinds of decisions you can inform.

That financial services firms rank understanding data as such a priority for 2013 shows the value that these firms are seeing from social media – not just as a means of communication but also to inform business and marketing strategies.

Nick Hungerford, CEO of Nutmeg

Last week we caught up with Nick Hungerford, CEO of the new client investment management company Nutmeg.  We think this is a business with the potential to really disrupt the investment market for a number of reasons. Firstly it is positioned perfectly to take advantage of the Retail Distribution Review (RDR), coming into force in 2013, which will make investors much wiser about the fees they are actually paying their advisors. Nutmeg offers a combination of total transparency and low fees thanks to its strategy of investing in the burgeoning Exchange Traded Funds (ETF) market.  Nutmeg has also tapped into the online banking and social media trends – offering a slick user interface and backed by investors that include Tim Draper and Spotify board member Klaus Hommels.

It was only a matter of time for social media technologies to start disrupting the financial services market and we’ve written about some of our predictions before.  We’ve seen interesting companies like Friendsurance using a peer-to-peer model  - combining social networks with insurance services – to lower premiums and Polish bank Alior Sync enabling customers to make financial payments through Facebook.

Q: What was the inspiration for starting Nutmeg?

A:  I’d been working in Financial Services for 7-8 years and I always found it remarkable that even though finance and investment is applicable to everyone regardless of wealth, private banks only deal with the extremely wealthy. Friends/family would ask me for help with investments but I would have to turn them down.  At that point I started talking to investors/smart people working in tech industries. They all said the same thing, “I want to invest online, I want a smart solution and I don’t want to pay someone too much.” At that point it became obvious there was an opportunity to disrupt the financial services industry.

Q:  Do you see a threat from other trusted consumer brands diversifying into this kind of financial service?

A:   It takes you into an entirely new regulatory arena. People often ask me, “Why wouldn’t Google or Facebook do this” but it requires a massive change to their business culture. If they start managing money they have to take on financial professionals. Becoming an investment manager is a totally different ball game. Having said that, we do want there to be more people like us, driving change in the industry.

H:  How do you encourage people to take that first step to invest and put something away for a rainy day?

There is an education curve. Nutmeg is a site you come to learn about investing, money and how to save. Then, when you are ready, you can choose to invest. We are starting with those people who are used to internet banking/investing, are familiar to other online services out there and like the user experience. Perhaps they’ve had an account with a broker but don’t want to spend so much on fees anymore.  I like the analogy of internet banking – at first it was daunting to use that service but now I never go in branch at all and I’m not alone – Britain has one of the highest adoption rates in the world for internet banking and I’m sure we’ll get there for saving and investing. We only need a fraction of the market to be a giant company.

Q:  Your educational content is key to your growth, what’s on the roadmap?

A:  We know that people care most about important financial decisions, like buying a house or car. We want to inform people of what and why we are investing in things, give them a clear monthly update in a non-obnoxious, easy to understand way so they know where their money is and how it’s doing.

Q:  You are currently investing in ETFs, could you explain that a little more to the uninitiated?

A: It’s a collection of investments that track an exchange, index or sector – so you buy a little bit of lots of different things in order to get diversification.  They are also low cost and 30 years of research proves 75% of active funds (or thereabouts) underperform and not just because of the fees. It’s very obvious that trackers and low cost funds are an increasingly attractive way to go.

Q:  Nutmeg is using social media in innovative ways to drive recommendations (offering fee discounts in return for social recommendations). How else will Nutmeg use social media to become a social business?

A:  We are looking at the sharing of ambitions and goals with friends and family and allowing for social investment.  So what if a group of friends wanted to pool their money into a fund that pays for them all to all go on holiday every year? From our perspective social media is about how we get people engaged around their money.  Nutmeg is the first to do what we do and we have a great chance to change things in the industry for the better.

There are unique challenges when working with financial brands when developing their social media strategy and implementing it. Concerns over falling foul of industry regulations, lack of experience in social and existing company culture all combine to present a number of hurdles at the outset. However, once these are overcome, there is also a huge opportunity to stand out from the crowd, by taking advantage of the industry’s generally slow take up of social media.

In order to successfully guide a financial services company through this journey, a number of activities need to be put in place first. Here are four things every financial business needs to do in order to become a successful digital leader in the industry:

1. Lay solid foundations in social media internally
   It is important to educate staff on all aspects of social media – the business value it can deliver, why it is so important for the industry, how to engage in it, the risks associated with it, setting up a governance structure to manage the activity and how to act in a crisis situation. In a nutshell, it’s about enabling staff to confidently become involved while at the same time doing it in a way that protects the brand.

2. Define an effective social media channel strategy
   How the business engages with its audience is one of the key factors in the success of its social media activity. Among other things, all social channels should contribute to business strategy and objectives, there should be a clear, coherent content plan for each channel and every channel should have a clear primary marketing objective.

3. Implement a change management programme
   Attitudes towards social media amongst staff are understandably often focussed on the risks and dangers of becoming involved. While these are valid concerns, it is important to educate staff these risks can be managed and controlled, while the benefits are significant and can deliver the business real value if done in the right way. A programme dedicated to changing attitudes and educating on what’s possible is another crucial piece of the jigsaw.

4. Be clear on how FSA regulations affect social media activity
   While FSA rules are media neutral, thought and consideration still needs to be applied to how this affects the business’ social media policy. Clear guidelines on what staff can and can’t do needs to be accurately defined and then communicated effectively across the organisation, in order to mitigate this risk to the business.

If you’re a financial services company and are considering increasing your social media activity, make sure you consider all the factors above. At first it may feel a bit scary, but I assure you it’s well worth the initial effort!

Photo credit: morebyless on Flickr

Following last week’s post exploring social media fears and opportunities for financial services brands, this blog post suggests three  ways that retail banks could make real, innovative use of social media to differentiate their products.

1. Social banking

Create a current or savings account with interest rates individually tailored based on a customers’ ability to recruit more members to the bank. New accounts could open with an average interest rate which increased by a small fraction each time a customer brought on a new member to join.

In the old days of member-get-member direct marketing, it was common for companies to offer discounts, gifts or value added services to customers who did the leg work in finding more customers. This model has now evolved into group buying from sites like Groupon, but there is evidence to suggest that “member get member” banking could work from Key Trade (under the control of Group Credit Agricole).

While Key Trade used a cash signup incentive, an interest based one would be a more meaningful commitment to a customer relationship and stronger motivator for recruiting new customers, particularly if interest rates could be competitive with current market offerings.

2. Social Micro Saving

Create a savings account which encourages you to micro-save via your social platforms. This could also be used to encourage micro-donation to charities. This could work quite effectively as a Facebook app which occasionally puts something into a subscriber’s news feed, reminding them to tuck £10 away in a savings account and make a small donation to charity.

Charitable donations website Just Giving noted the rise of social giving late last year and with the rise of applications like Snoball and SocialVibe, innovation is already beginning to harness the power of social donation behaviour to drive donations for charitable causes. If charitable donations can be contagious amongst social networks, it seems likely that social saving could be similarly rewarding and therefore contagious. Examples might include teams that are saving personal funds & raising charitable funds for expeditions, or groups saving towards a common goal such as holiday makers saving for a big trip.

3. Social Budget planning

Social gaming has proved itself remarkably addictive, but plenty of applications can the human desire to compete to good use. Mobile or social apps that let people compete over their personal budgeting targets could drive more careful budget planning & financial prudence.

As soon as NFC payment becomes a reality, mobile devices will be enabled to track spending both in terms of amounts and locations. If a couple, or group of friends decided to collectively budget towards a savings target, they could opt in to share how well they were performing against self-imposed goals. Personal financial data would remain private, but benchmarking against targets for lunch-time spending, for example, could earn gamers reward points & bonuses, just in the same way that FourSquare currently awards players with badges & Mayorships for check in achievements.

My purpose in exploring these ideas is to demonstrate the varied applications for integrating social media & social network behaviours with personal finance. With the growing popularity of The Co-Operative bank which offers customers a shared gains model and niche banks like Triodos offering consumer banking customers ethical and sustainable savings options, it’s not hard to imagine innovative, social financial products emerging as the financial services industry re-invents its public image.