On Investing

Time to invest in social services

Financial services companies in general have been notoriously slow to ride the social media wave.

Consumer goods manufacturers have been dabbling with online communities, Facebook competitions, social media monitoring and so on for years,
in a bid to better understand, engage with and grow their customer bases.

Yet even though the financial services industry has an acute need for an image revamp – and social media could help it appear more friendly and accessible – uptake of such strategies has been half-hearted or next to non-existent.

Fund managers’ websites and apps may give access to videos and blogs, and post status updates to LinkedIn, but do they generate a dialogue with the end-investor?

With investment platforms being online entities, you would expect them to be more au fait with social media strategy. The direct platform players are somewhat more proactive in providing expert opinion via blogging and video content, but these are not sufficient in terms of consumer outreach work.

A couple of platform providers have embraced the concept of social investing. Willis Owen’s Play Space tool lets users build virtual portfolios and Hargreaves Lansdown launched its Big Deal trading challenge earlier this month. These initiatives are in large part designed to allow novices to learn through doing in a way that does not end in tears. The Hargreaves competition has an extra social component to it: just like Fantasy Football, you are competing for the top spot on the league table and you can create your own investment company with friends or colleagues.

<b)The Nordic way</b>

For the best case of an investment company going social, look to the Nordics. Swedish-born Nordnet serves institutional clients, financial advisers and direct investors in Sweden, Denmark, Finland and Norway.

A desire “to use the internet to democratise stock trading” is at the heart of the business, says CEO Håkan Nyberg.

The website allows users to blog investment tips and there is even a portfolio competition whereby an ‘expert’ team and ‘challenger’ team compete for the best returns.

Nordnet has also become a majority shareholder of Shareville, a Swedish social networking site for investors. Shareville is similar to Willis Owen’s and Hargreaves’ virtual portfolio tools, but with real portfolios and facilitated interaction between members via profiles and forums.

Data from users combined with fund manager information is sold as a low-cost limited form of independent advice. Integration between the two will result in platform users being able to share real investment portfolios.

Håkan believes that, through these tools, consumers who distrust traditional financial institutions can find online “Warren Buffets” to trust.

<b>Crowd control</b>

Effective social media strategies work particularly well as most people are known to be followers of the herd attuned to the wisdom of crowds. You can educate people via Investopedia on what an ETF is but the desire to imitate others is often what triggers action.

A prime example is last year’s stampede for Royal Mail shares – everyone was doing it and it was ‘known’ to be a good deal.

A more personal example is my father, who jumped on the Anthony Bolton China Special Sits bandwagon when the fund had already begun to fall from grace.

A survey conducted among Telegraph readers on behalf of The Platforum confirms the importance of social influence on investment decision-making. Almost half responded that word of mouth helped to influence which provider they chose through which to invest.

What people around you say can be more potent than what the impersonal expert tells you for a perfectly rational reason – family and friends have our trust, whereas fund managers and platforms have not yet earned it or might even have broken it in the past. Thinking more ‘social’ can give a face and a voice to a company, transforming it from unfamiliar foe to friend.

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