Social media represents an important area of innovation for financial firms. Once dismissed as a trivial pastime, there is no disputing the fact it is now far more. As critical communications channels and sources of real-time data, social networks present myriad opportunities to asset management firms who are willing to engage.
They will need to tread carefully, paying close attention to potential pitfalls. Misinformation and information bubbles can be formidable hurdles, whether firms are interested in data mining social networks or bolstering their brand online. Poor social media ads can generate a negative emotional response in less than a second, damaging a brand in the blink of an eye.43 Twitter can be an excellent way to convey certain ideas, but tweets cannot be edited. Faced with the option of deleting and retweeting a problematic post, one must consider that the simple act of retweeting assures additional exposure. Even brevity itself—one of the charms of social media posts—can lead to inaccuracies and misunderstandings. A wide social media presence can also expand a company’s exposure to hackers. There is also the possibility that a company or one of its prominent employees goes viral for an unintended reason.
There are also less obvious challenges. Concerns over compliance and resource allocation have kept some firms away from social media altogether, but they can also perpetuate half-hearted efforts. Neglecting to devote the necessary resources and failing to take advantage of the medium’s potential can leave inert and unconvincing brand statements in the public eye that can erode reputations over time. This last risk is particularly important in a world where many financial brands are facing an erosion of awareness and trust. Conversely, the opportunity to build a strong brand on social media and extract as much value as possible by engaging with it should prove irresistible to a growing number of firms.
Currently, we are seeing this transpire in one of three ways. Marketing is the most frequent application, with asset management firms of all types relying on social networks to distribute content, connect with investors, and build their brands. Social media awareness is a vital metric in today’s world. The size of a company’s network is vital to its growth, increasing the opportunity to create favorable impressions and drive sales. Less common is the integration of social networks into the investment process itself, usually as a source of sentiment data. Social networks doubling as trading platforms are the most recent innovation.
As social networks continue to evolve, financial firms will attempt to leverage them in new ways, possibly combining multiple approaches. The institutional business will always prove to be resistant to change, but we should expect more radical experimentation on the retail side. It is not hard to imagine a scenario where social media is tightly and inextricably woven into business models, with investors, products, and clients all linked via real-time platforms sporting video, text, analytics, and the inevitable influencers.
Traditional financial media companies have steered in this direction for some time. They have been joined more recently by an array of startups with similar ambitions. Both groups may adapt further if succeeding generations’ proclivity for gaming reshapes traditionally more “serious” activities such as investing. It remains to be seen who will assemble the most successful model, but asset management firms will want to track developments in order to position themselves appropriately and maximize their chance for success in the brave new social world.download the full paper
The Investment Manager Services division is an internal business unit of SEI Investments Company. This information is provided for education purposes only and is not intended to provide legal or investment advice. SEI does not claim responsibility for the accuracy or reliability of the data provided. Information provided by SEI Global Services, Inc.