Whether we like it or not, social media is now integral to both personal and professional relationships. All major brands have some presence on platforms like Facebook, Linked In and Twitter and it’s becoming more and more important to overall marketing strategies. Financial services is no different, however there are more factors to consider in the industry. There are stringent guidelines put in place by regulating bodies as well as a negative public perception that needs to be addressed before any strategies can be put in place. However there are also great advantages to using platforms in the industry. Twitter in particular has become somewhat of a hub for information. To try and understand the relationship between the two, we’ve taken a look at the upsides and downsides of social media within the world of finance.
It will come as no surprise to anyone that there is a particularly negative attitude out there towards brands within financial services. A proliferation of this attitude since the recession and subsequent financial scandals have meant it can be like fighting an uphill battle for many brands when attempting to market their services. Many however, don’t do anything to help themselves on social media. There are a number of high profile instances of big companies unwittingly finding themselves on the end of a barrage of bad twitter sentiment. Much of this comes from users who hijack Q and A or hashtags produced by a well-meaning social media officer. Probably the most famous example of this would JP Morgan’s #AskJPM debacle. After opening up themselves to questioning with the hashtag, the brand was immediately met with ridicule and blunt questioning on their dubious financial practices by thousands of users. They eventually gave up on the idea. Better luck next time.
There are many restrictions that dictate the marketing practices of financial services companies. The FCA (Financial Conduct Authority) is the UK’s authority and has very strict restrictions on what brands within the industry are allowed to post:
- Promotion- Companies must not be seen to be unfairly promoting their own products. E.g. Brands cannot claim their company is “the best for spread betting”
- Advice- To avoid any risks of insider trading or fraud, firms in the industry cannot be seen to be offering specific advice to consumers that could lead to financial gain.
- Disclosure- Brands must give full and clear disclosure about their services from the offset, with financial services duty bound to have risk warnings about their services clearly visible in the marketing materials at all times.
These restrictions, although for the benefit of users, also make it difficult, especially on social media which is generally a short and engaging way of engaging with potential customers and followers. You can’t fit everything in a tweet!
A source of information
There were an estimated 302 million active Twitter users in the first quarter of 2015, meaning there are millions of potential sources of information. .Zak Mir of industry publication Spreadbet Magazine explains “If you follow the right 20 – 30 people in the trading and financial markets area then you should be fully informed in terms of what to think, what to trade and when to trade it. Yes, Twitter is that good”. Obviously as with any information source, you have to check for provenance which can be difficult with Twitter.
Social sentiment vs. reality
As well as garnering information from news sources, social media can also be used to identify trends in public opinion. With such a big community of people on sites like Twitter, it’s possible to look at the opinions of those online and relate this to real life public opinion. Tammy Poon, Marketing Campaign Executive at spread betting provider Spread Co, says that those in the industry should pay close attention to how a story is perceived, “Has it got shares or favourites? Twitter can show whether a story is reactive or not” and therefore whether it will have an effect on share prices. These assumptions should not be the basis of a strong foundation for financial decision-making though. There are distinct demographics online, namely between the ages of 18 and 34 which affect this.
A perfect example of this can be seen in the results of last year’s Scottish Referendum. In the lead up to the election social sentiment was very much in favour of a ‘yes’ vote. Older voters it turns out were more likely to vote no, and made up a larger percentage of the voting public, but a smaller part of Twitter’s demographic. This explains the skewed results.
It can affect share prices
There is some evidence that sentiment on Twitter can actually affect share prices. A study by Datasift in 2012 provided some correlation between the public sentiment of the Facebook brand on Twitter, with changes in the price of Facebook’s stocks over the course of a day. When Twitter sentiment started to go negative, sure enough within an hour the stock prices would fall.
This could be for two reasons, either it does indeed have an effect upon share price, or that social media as a reflection of public opinion is merely displaying pre-emptively what is about to happen. As the stock market is so driven by confidence and opinion it’s hard to say which, if not both, but it’s still worth noting.
Financial services may have had a bumpy ride with social media so far but, it has undoubtedly opened up this daunting industry to a wider audience. This easier access to information for both the financial services and the general public has helped to open a dialogue beneficial for both parties.
However, on the flip side, social only represents a small minority of the tech savvy demographic interested in finances and so if the data provided by social is trusted implicitly could cause unrepresentative fluctuations in the market .
Any advance in opening up the finance industry should be seen in a positive light but it is important to remember both business and client side, that social should be seen as a part of a research strategy and not taken as gospel.