Time for asset managers to embrace social media

02 Jul 2013

While social media use explodes, asset managers are proving slow to follow their customers onto these networks. Already Facebook, LinkedIn, Twitter and YouTube are influencing savers’ investing decisions. In future, social media may lead to fundamental changes in investment practice, and how investors interact with their asset managers. Yet many asset managers are taking a ‘wait-and-see approach’.

Only 60% of large asset management groups actively use social media, according to our study “Asset Management in the Social Era,”¹ conducted jointly with Caceis Investor Services. By contrast, recent US research shows that 25% of adults use social media for personal finance and investing purposes, a figure that rises to 34% for affluent investors.²

Generation Y (a term loosely used by commentators to describe people born between1980 and 2000), is increasingly turning to social media for investment information. But even among those asset managers appearing to embrace social media, only 15% are truly interacting with their customers – by answering their questions or organising discussion forums about specific topics. It appears that only this small minority of asset managers understand and appreciate social media’s true potential and are trying to capitalise on it.

Social media’s potential to revolutionise asset management is already evident. Signalling a possible threat, social media is spawning disruptive business models on the industry’s fringes. ‘Mirrored investing’ sites, for example, allow small investors to mimic the successful investment strategies of others. Meanwhile, debt and equity crowd-funding give private investors a medium to fund businesses directly.

Big independent US managers lead the way

Our study of more than 100 leading asset management groups worldwide showed the largest asset managers embracing social media fastest. While 77% of asset managers managing more than €500bn have active social media accounts dedicated to asset management, only 46% of those managing less than €150bn have. The interviews that complemented our quantitative survey show that although large players have the critical mass to develop and maintain an additional communications channel such as social media, being small is no barrier to entry. Even the most active participants don’t necessarily have dedicated social media budgets.

In order to rank the most active asset managers on social media implementation, we defined key performance indicators, using data such as number of posts, ‘likes’, followers, as well as interaction with clients and prospects. Unsurprisingly, the asset managers with the strongest brands dominate the ranking, reflecting the fact that brand remains the primary motivation for using social media. What’s more, US managers take nine of the top ten positions, possibly because they were early adopters of social media. Another interesting finding is that none of the asset managers affiliated to larger organisations rank in the top ten. In most cases, their parent companies maintain social media accounts, but don’t keep accounts for their asset management subsidiaries.

Three social media strategy guidelines

Clearly, most asset managers need to have stronger social media presences, guided by intelligent strategies. In our view, there are some specific steps that managers should take and some risks they should avoid. We suggest following three broad guidelines:

  1. Meet the needs of your audience
    Using social media accelerates information dissemination, as well as improving investor and advisor education. Social media networking and interactivity supports and educates clients, leading to benefits for both the client and the asset manager. Our interviews show that the most successful companies are not the ones that simply churn out press releases, but those that engage with their clients.
  2. Manage your risks
    Most of the risks associated with social media are non-financial, but any can quickly hurt your profitability. We have identified four principal risk categories:
    • Brand & reputation risk covers damage to relationships with clients, shareholders and business partners
    • Information security risk covers unintended leaks of sensitive data, due to account hijacking and subsequent misuse
    • Legal & regulatory risk covers issues like the mistaken release of private data and the failure to effectively meet a regulator’s data retention demands
    • Client ownership risk deals primarily with the ownership of intellectual property. If an asset manager has invested time in developing a following, what’s to stop a competitor from joining the conversation? Or if a ‘star’ portfolio manager interacts regularly with clients, how can a company limit the danger of losing clients if the portfolio manager defects to another company?
  3. Measure your success
    Connecting sales figures to social media usage is difficult. But metrics on brand awareness, content engagement and investor sentiment are relatively easy to calculate.

Stay close to change

There remain many challenges and questions for asset management companies as social media evolves, but its growing importance is unquestionable. In the brave new world that is social media, it is imperative to remain close to change and to be open to new concepts that emerge as the technology and its usage mature. As the competition for investing capital intensifies, now is the time for asset management groups to lead in this space rather than follow.

To read the full report, please go to: http://bit.ly/136kOJK

¹Social Media Studies: Asset Management in the Social Era. June 2013. Caceis Investor Services and PwC.
²Cogent Research.