Social Media and Investing

Fascinating new study from Corporate Insight  called Social Media: Trends and Tactics in the Financial Services Industry. Corporate Insight looked at the social media features offered by a group of banks, brokerages, card issuers, mutual fund companies, annuity issuers and tax preparation services.

Corporate Insight reported that 15% of the firms that they researched have added significant social media features to their online platforms in 2008, 70% of which have developed full-fledged online communities.

“Two years ago, very few financial services companies offered social media features,” said James McGovern, Vice President of Consulting Services at Corporate Insight. “That was before social media really exploded in popularity. Now, sites like Facebook and YouTube are some of the most recognized destinations on the Web. Financial institutions are beginning to understand that customers want the ability to share knowledge with fellow customers, especially given the challenges posed by today’s investing landscape.”

While social media is growing in popularity in the financial sector, companies are these communities for a variety of different reasons. Schwab for example is using their social network for collecting customer feedback while American Express uses it to educate and market themselves to clients and prospective customers.

What I found interesting from the brokerage side was that many of the many self-directed brokerage firms like Schwab and Fidelity have embraced social media while none of the full-service brokerage firms Corporate Insight monitors have entered the social media world.

Some of the highlights of the report by financial sector were:

Social Media and Brokerage Companies

• Six of the 20 brokerage firms studied have YouTube Channels.
• Schwab and Scottrade’s online communities are for customers only. Schwab’s (approximately 4,200 members) is restricted to active traders who make more than 36 trades per year, while Scottrade’s community (approximately 8,000 members) is open to all clients.
• TD Ameritrade offers a sentiment tracking tool on its website that allows clients to vote on the daily performance of a stock and see how other traders are voting.

Social Media and the Banking and Credit Cards Industry

• Eight of the 20 banking and credit card firms tracked have YouTube channels. Bank of America and Citizens Bank feature content from their viral marketing campaigns and American Express devotes their channel to their philanthropy, MemberProject initiative.
• Wells Fargo was one of the earliest adopters of social media, participating in the virtual world Second Life before branching out with its own Stagecoach Island community targeting Gen Y customers.
• American Express, Bank of America and Capital One have also developed their own online communities to serve small business owners.
• Visa has launched its own Facebook application targeting small business owners, a one-of-a-kind in the industry.

Social Media and Annuity Issuers

• Annuity issuers target older consumers who are the least likely to participate in social media.
• Only two firms, AXA and TIAA-CREF maintain online communities directed at retirees. New York Life lets public site users rate and bookmark pages using popular share sites like Digg.

Social Media and Mutual Fund Companies

• While mutual fund company executives expressed a strong desire to incorporate social media into their business models, none had any concrete plans and most say they are being held back by compliance departments. Corporate Insight also believes that a conservative approach to the Web is partially to blame for fund companies’ inactivity in the social media space.
• T. Rowe Price does utilize social media for internal training of seasonal tax representatives.

Corporate Insight’s findings suggest that while financial services companies have embraced social media and are beginning to incorporate it into their business model, most firms are still experimenting with best practices. “We’re at the beginning of a major new development that will have a significant impact on the way firms serve Generations X, Y and beyond,” said McGovern.

Very interesting data. I am really surprised that none of the full-service brokerage companies or any of the mutual fund companies have embraced social media. In today’s investing climate, having a forum like American Express has where you can educate existing clients can go a long way top soothing clients nerves about the market and might make them less likely to transfer their assets elsewhere.