Impact on Financial Services
Companies like Nike and GoPro are proof that social media can be a potent tool for building brands. Consumer brands that can leverage the unique characteristics of social networks feature prominently among the most popular. With 16.9 million and 13.5 million followers respectively, PlayStation and Xbox are the No. 1 and No. 2 ranked brands on Twitter, in part because gamers rely on the medium for updates on their favorite pastime. Many top fashion brands are joined by companies like Starbucks (11.4 million) and Whole Foods (4.4. million), which use Twitter to deepen their engagement with already enthusiastic consumers of their products. Of the 140 million businesses now using Facebook, Coca-Cola is the most admired, boasting 47.6 million likes.21 The page’s popularity may not be surprising, but its origin as a fan page (rather than a corporate initiative) is noteworthy and potentially instructive for marketers concerned about a heavy-handed approach to promoting their brand.22
ONE OF THESE IS NOT LIKE THE OTHERS
Asset managers are late to the party. Compliance concerns and resource constraints keep many from staking out a meaningful presence on dominant platforms such as Twitter and Facebook, let alone Instagram or YouTube. Offering a sophisticated B2B environment with multiple types of engagement, LinkedIn is the exception to the rule. The promise of networking caused vast numbers of professionals to sign up, and companies seized the opportunity to showcase their thought leadership as the site grew beyond its original role. Positioned for business rather than pleasure from the very beginning, it is now the social network of choice for asset managers and wealth managers.
For some, it may be too much of a good thing. Motives underlying overtures can be murky, and it is disheartening when apparently genuine networking opportunities reveal themselves to be fishing (or “phishing”) expeditions. Still, this type of environment is tailormade for B2B sales, a vital factor in the heavily intermediated financial services business.
LinkedIn now has over 722 million users, of which approximately half are regular visitors. A truly global business, it spans 200 countries and territories. It is used more regularly than any other social platform for sharing content and networking and ranks as the top channel for B2B content marketers.23 Able to target their advertising by industry and job title, almost nine out of ten B2B marketers use LinkedIn to generate leads.24 Insightful content also forms a natural bridge between marketing overtures and investment decisions: A survey by the Brunswick Group found LinkedIn to be the most used and most trusted social media platform for investment research.25 Furthermore, LinkedIn touts itself as the safest platform when it comes to reputational risk, reducing the likelihood that a company’s messaging will appear alongside divisive or troubling content.26
All of these are important considerations for financial firms. The reputations of banks and financial services firms have been on a slow and steady slide for years, and many would like to capitalize on the transformative potential of social media in order to polish their image.27 Corporations get to engage one-on-one with customers while also benefiting from a growing stream of data detailing the behavior of those on social platforms. Brands have gone from being built and nurtured over long periods of time to being shaped daily by interactions with the public.
The potential goes far beyond the (admittedly important) ability to showcase traditional business attributes such as products, performance, features, and service quality. Thoughtful social campaigns can highlight things that might otherwise be missed but are nevertheless important in building a strong, 21st century financial brand, including philanthropy, community involvement, and technological innovation. Younger consumers in particular will be responsive to evidence of environmental concern and the fair treatment of employees.28 Taking a stand on issues that matter to clients and prospects is sometimes disparaged as virtue signaling, but companies have the opportunity to go beyond ads and sponsorships by disseminating carefully articulated messages and highlighting good deeds.
There are many ways to build a brand on social networks. Widespread promotions of a brand can lead to influence over certain groups, generating the potential for one-on-one engagement that can lead to sales. Client retention efforts complete the loop.
Found at the top of the marketing and sales funnel, brand-building efforts often find the most traction at the intersection of corporate initiatives and public causes. ESG investing is a good example of a growth area for many asset managers which also happens to resonate with a growing number of people. It also harmonizes well with favorable brand attributes that are best illustrated through concrete action such as community action or philanthropy.
The potential for viral spread is what sets social media apart from all traditional forms of communication and advertising. Earworms like Coca Cola’s famous I'd Like to Teach the World to Sing (In Perfect Harmony) are not easy to create, and neither are campaigns that go viral on Twitter or Instagram, but the barriers are lower on such platforms and a consistent stream of content makes it easier to establish a corporate “personality.”
It has been interesting to watch financial firms become more adept at the use of social media in the years since The Upside of Disruption was released. While some are still reluctant to fully engage, others have made significant strides, resulting in hundreds of thousands of followers. They are not only more fluent (and presumably efficient) but have also embraced the opportunity to amplify and add depth and breadth to their brands. Having added 12,000 new followers during Q3 2020, Goldman Sachs now boasts 815,000 Twitter followers. Warren Buffett alone has 1.7 million followers.
Thoughtfulness and experience go a long way to ensure that corporate social media strategies don’t fall flat. Superficial marketing efforts may not move the needle, but there are many ways to build an authentic social media presence. Some firms post from conferences they attend, sharing the energy and insights they find there. Others highlight charity work in which they are engaged. One of the more popular approaches among investment firms is to focus on market news and investment issues. All of these are done in compact and concise ways suitable to the medium, often supported by additional marketing collateral or thought leadership.
The payoff is not theoretical. According to a J.D. Power study, “Two out of three financial advisors who report high levels of engagement with an asset manager are very likely to increase investment with that asset manager. By contrast, only 37% of advisors who report low digital engagement with a firm are likely to increase investment.”29
Social media is usually discussed in the context of marketing and distribution, but it plays another role of particular interest to investment firms, which are increasingly tapping social networks as a source of data informing allocation weightings and security selection. Social media generates vast streams of unstructured data that is not particularly useful when considered one post at a time, but new data tools are progressively increasing their utility.
In an investment context, social media is primarily being used to detect, gauge, and validate sentiment. As markets become more efficient, the real-time assessment of crowd psychology is increasingly viewed as an area where better tools and analytical firepower can make a meaningful difference. First used by hedge funds that could afford then-expensive tools and had the most to gain by leveraging short-term information arbitrage opportunities, social sentiment tools spread quickly. They can now be found at traditional asset managers, private equity firms, banks, exchanges, brokers, and publishing organizations.
Social sentiment tools have even trickled down to retail platforms such as Fidelity, which offers a metric known as the S-Score that distills social sentiment on thousands of publicly traded companies from Twitter and StockTwits on a minute-by-minute basis.30 Some companies go further, continuously scanning not only social networks but also message boards and comments on news articles. Natural language processing is applied to this constantly growing sea of unstructured text data in order to extract meaning and produce trading signals. One sometimes overlooked advantage of these types of tools is their ability to evolve, continually rating the utility of each feed or commentator and adjusting their algorithms on the fly.
Academic research supports the use of social sentiment signals, with some caveats. One U.K. study focused on StockTwits affirmed social media sentiment as a good predictor of monthly stock returns, provided those tweeting were not following too many names.31 A separate study from Germany found an “elusive and short-lived” predictive relationship between sentiment and returns.32 Furthermore, “expert users” were the main drivers of this interdependence, rather than a broader population of social media users. The study’s authors detected “significant predictive gains over benchmark models in times of negative market returns,” leading them to conclude that “expert sentiment signals can yield higher risk-adjusted returns than classical price-based signals.”
As exciting as this development is, there are significant risks, particularly for small investors pursuing short-term gains in lowcost trade environments. In a 2019 Investor Bulletin,33 the U.S. regulators, SEC and FINRA noted that posted information may not be accurate, complete, or even timely. The fact that viral posts can take days or even weeks to catch fire demonstrates the lack of certainty around how fresh information may (or may not) be. The regulators also remind investors that sentiment analysis needs to be applied in the context of a thoughtful strategy rather than driving impulsive trading decisions.
Social media can also be deliberately misleading, with inaccurate information spreading after having been posted by unscrupulous players. Luckily, many of the same analytical tools can be repurposed to detect fraud. They have effectively been used to uncover pump-and-dump schemes and to monitor key events for evidence of insider trading.34
Marketing and research are clearly established functions of social media in financial services. Social trading is a more recent development that promised to close the loop, directly linking networks and investors at their logical conclusion. Representing a natural progression from the emails and chat rooms that preceded them, platforms dedicated to this model subvert the premium often placed on secrecy and circumspection by allowing others to monitor and mimic investment strategies.
Dating back to the founding of eToro in 2010, this increasingly crowded space is evolving quickly but still has the feeling of an embryonic business model. Social investing currently comes in several flavors. Some are focused on trade mirroring. Others emphasize crowdsourced earnings estimates. Many are independent firms, but incumbent financial services firms have jumped on the bandwagon by doubling down on the social aspects of their online trading environments.
Fans of social investing point to their efficiency (research and analysis is baked into the trade) and the fact that traders being copied have their own money in the strategy. These advantages are enough for eToro to now boast 10 million users trading multiple asset classes.35 Despite regulatory concerns, social investing is clearly no flash in the pan.
It may be primarily a retail phenomenon, but even institutional asset managers will want to keep social investing on their radar. Depending on how technology and behavior evolves, there may be opportunities to leverage platforms or derive insights from their use.
Because it relies on the timely synergy of social media and trades, social trading may be on the cutting edge of technology. The flood of unstructured data makes visualization even more important, meaning we are likely to see more use of augmented reality by investing professionals. Algorithms may continue to capture market share, but as long as human traders are involved and emulated, there will be demand for faster and more intuitive interactions with snowballing data streams. Plugging into a virtual or augmented reality platform where data can be distilled, visualized, and integrated with a trading platform could be revolutionary.36
It can be challenging to paint an accurate picture of the future in such a slow-moving industry, but it is bound to look very different than the quiet, collegial offices of asset management firms in the past. With so many co-workers and clients working remotely, multimodal streaming platforms like Twitch may be paving the way for different kinds of interactions going forward. It is not hard to imagine financial firms taking advantage of an environment offering seamlessly integrated video, data, speech, and text with little lag.Read the next section
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.