How social media is going to change investment management

Filed in Asset Management

There is lots of buzz in the investment management industry and advisory business right now about using social media to communicate with clients and prospects. However, I think there are some more fundamental changes that social media will force on the investment management industry and processes.

Introduction

While participating in an industry round-table discussion on collaboration and driving efficiencies, I realized that much of the discussion and efforts in financial services is focused on how social media can be used in marketing and sales activities. However, what no one focused on and what I think is equally as interesting is how might social media change the way in which investments are managed.

I ask, how might social media change the way client investments are managed?

Option #1) Enable social media to play a role in reviewing and discussing investment performance.

One of the first changes that is likely to impact the investment management process is that some clients and prospects are going to be interested in dissecting, reviewing and discussing in a social media type venue the performance of their portfolio or mutual fund.

Enable clients to share their thoughts and insights on the last quarter’s performance and a sampling of the holdings and you can see how this would really be a great use for social media and drive client engagement. If clients were really able to internalize and feel like they had a say in the performance review, they will be more likely to stick with their investment manager through both good times and bad.

Who is going to be the first investment manager to figure this out?

Option #2: Enable social media to play a role in deciding what investments to buy and sell.

In the retail and R&D spaces of other industries, social media is already being used to shape the products that companies provide. I ask, why can’t that happen in financial services?

Using the idea of crowd sourcing, there is the potential that better investment outcomes could be achieved if social media was used to help shape what investment to buy or sell in a portfolio.

While the portfolio manager or team should have the ultimate say in order to stay true to the investment style and methodology, levering the input and wisdom of many more people beyond just limited analysis and portfolio teams could be enabled through social media.

I believe this use of social media is likely to be the most challenging. None the less, it would help clients identify with and better trust that their money is being invested in a way that is consistent with their objectives.

I believe that social media has the opportunity to introduce fundamental changes on the process of managing client investments. How this will manifest itself is going to be something we see over the next couple of years. I have provided two ideas on how this may occur.

Whether the investment management industry likes it or not, clients are going to want to feel empowered and connected with the investment management process. In the end, social media is going to end up forcing the issue.