Margaret O'Tooleby Maggie O'Toole The University of Akron This article has been read 780 times
The Best is Yet to Come
Social Media’s Impact on Financial Services
Social media has not yet impacted the core business model of financial services, but it is poised to do so in the future.
The financial services industry has been hampered in its ability to take advantage of social media channels for two main reasons:
1) Finances, and therefore the relationships that surround them, are inherently private matters
2) Heavy regulation limits service providers’ ability to utilize social channels to engage with customers and prospects, or scares service providers from attempting to utilize social channels altogether
The Current State of Social Media in Financial Services
Money is one of the last areas that has yet to become social – it is now only just becoming digital, a precursors to being sharable via social media. The 2011 American Bankers Annual survey found that, for the first time, the majority of adults prefer to do their banking through online banking.1 Customers are only just beginning to engage with their financial service providers through digital channels – but, these secure access channels are not social or communicative, rather they serve transactive purposes.
Assetinum, which defines itself as “an independent information portal for investors,” recently undertook a survey of social media use in the private banking industry, which found that:
On average, however, the social media competence of banks is rather poor… «For a surprisingly high amount of banks a convincing social media strategy is still not distinguishable,» says Benjamin Manz, managing partner of assetinum.com. And this despite the fact that bank clients worldwide wish for more transparency and information content – not least because of digital media.2
This wish for transparency conflicts with the fact that, in western culture, talking about money, either online or off, is still inherently taboo. While we’re beginning to share our buying habits through Facebook’s social graph integration with ecommerce outlets, it’s still considered gauche to share how much you make or how much you own. In a social media world of conspicuous consumption, our discussion of our finances is conspicuous because of its absence.
Because they deal with our money, financial services are inherently private – they’re just not something that we discuss socially, either online or in person. So often, our relationships with our financial service providers are private, too. Because of the private nature of financial relationships, service providers are hesitant to reach out to customers through online channels. LinkedIn, the social network for business professionals, is riddled with questions from financial service providers asking how they can take advantage of the network’s recommendation feature, a useful marketing tool for providers of professional services, while complying with regulations.
Financial services is a very highly regulated industry, with regulations that limit not just how services are constructed, but how they are marketed. The Financial Industry Regulatory Authority (FINRA), the U.S. Department of Labor, through its Employee Retirement Income Security Act (ERISA) regulations, and the Internal Revenue Service (IRS), amongst others, all limit how financial service providers can engage with customers and prospects.
Many of the regulations that impact the financial service industry’s ability to leverage social media were put in place before the rise of social communications. Old regulations, such as the IRS’s 7216 (which prevents the marketing of non-tax products to accounting firms’ tax-only clients) that were developed for traditional marketing activities, have been applied to social media activities, as well. The old rules have not been adapted to meet the changing methods of communication. All content is still subject to review and must be kept on file for the requisite number of years, regardless of the fact that most social media contact is fleeting. Regulations such as 72163, which limit marketing message content to specific types of clients, make it difficult for financial service providers to remain compliant while leveraging the scalability of social media marketing and communications tactics.
Although financial service firms may not feel that they are ready to engage their customers via social media, it has become such a ubiquitous form of communication that it can no longer be ignored. Many financial service providers either skipped web 1.0 completely or did it quite badly (e.g. the proliferation of “canned” financial service firm websites that have not been updated since their creation). They’re now finding themselves forced to join web 2.0 without the background knowledge to make it work or a business model that is easily social.
How Social Media May Change the Future of Financial Services
Although there have been recent moves to productize financial services, particularly in the insurance industry (e.g. Progressive’s Flo ad campaign), as a rule, financial services require specialized marketing tactics.4 Aside from the very bottom of the financial services markets (e.g. tax preparers, free checking accounts), relationships between customers and service providers are built one-on-one. Clients’ relationships are with their bankers or their financial advisors, not with their banking or financial institutions. Because of the nature of these relationships, financial services firms need to consider a specialized approach to social media marketing: content marketing.
Content marketing is proving to be a successful way for financial service providers to connect with prospective clients. Because content marketing (largely structured around HubSpot-type campaigns based on white paper downloads) is a pull tactic, it allows for consumers to build brand awareness in their own space, at their own time. Thought leadership pieces, distributed though online channels, allow financial services institutions to use one-to-many interactions to build one-to-one relationships. Social media pull-based marketing strategies also allow financial service firms to get around regulations, such as 7216, that regulate push-based marketing tactics and give them more freedom in their communications.
Joining with the rise of pull-based content marketing, changing regulation of the financial services industry may force the market to become more social. New ERISA regulation 408(b)(2) is forcing fiduciaries to determine fee reasonability, and service providers to justify their fees.5 Increased consumer demand for information about fee structure, whether because of professional obligations or cultural shift, is forcing fee compression throughout the industry. Compressed fees, and increased provider and consumer willingness to share fee information, is leading financial service firms to offer value-added services, such as consulting. These value-added services (generally more soft-skills based than traditional service offerings) have a number of benefits over traditional services:
· They are not as easily commoditized or subject to fee compression
· They are often able to command higher fees and enjoy higher realization
· They lend themselves to thought leadership and the creation of sharable content
Thought leadership and knowledge creation require a significantly different set of skills than the technical acumen upon which financial service firms have traditionally relied. It’s no longer enough to balance the books or a portfolio. Now an accountant or an advisor needs to be able to provide business advice, industry insight, and professional service – and be able to talk about it in 140 characters or less.
From a customer’s perspective, financial services are often dry and complicated. Their value proposition isn’t easily captured in a tweet. The marketing surrounding new financial service product offerings isn’t likely to go viral. By changing the way that services providers engage with clients and potential customers, social media is poised to change the way that financial service firms think about and package their core offerings. Through encouraging financial service providers to communicate with their customers, social media is forcing the financial services industry to realize that there is a value in those customer communications – turning them into a profitable service line in their own right.
Social media hasn’t yet had an impact on the fundamental business model of financial service firms, but in the future, it’s poised to do so. Already changing the marketing and culture of financial service firms, social media may soon have an impact on service offerings.
- American Banker Association. Survey: Online Banking Surges, Mobile Lags.
- Assetinum. Social Media: Banks Are Lagging Far Behind.
- Baca, Michelle. "How IRS Section 7216 Affects Your Marketing Activities”
- Progressive Insurance. Advertisement.
- McEwan, Paul. "What Does the New ERISA Regulation Mean for Plan Sponsors?"
- American Banker Association. Survey: Online Banking Surges, Mobile Lags. American Banker Association. Source Media, 8 Sept. 2011. Web. 3 June 2012. <http://www.americanbanker.com/issues/176_175/online-banking-surges-10420....
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- Financial Social Media. Compliance Guide: Guidance for Financial Industry Professionals Engaging in Social Networking Sites. Working paper. Financial Social Media, 2010. Web. 3 June 2012.
- McEwan, Paul. "What Does the New ERISA Regulation Mean for Plan Sponsors?" Weblog post. Dear Drebit. Rea & Associates, 30 Mar. 2012. Web. 3 June 2012. <http://www.deardrebit.com/erisa-regulation-plan-sponsor/>.
- Progressive Insurance. Advertisement. Progressive. Progressive Casualty Insurance Company, 14 Mar. 2011. Web. 3 June 2012. <http://www.progressive.com/commercials/rivals.aspx>.
- Radian6. How to Create a Social Media Strategy for the Financial Services Industry. Radian6, Dec. 2011. Web. 3 June 2012.
- S., Mike. "What's the Truth about LinkedIn Recommendations & Financial Services Advisors?" LinkedIn Question. LinkedIn Answers. LinkedIn, 26 Aug. 2010. Web. 3 June 2012. <http://www.linkedin.com/answers/finance-accounting/financial-regulation/....
- Shayon, Sheila. "Banking on Social Media: The Financial Services Brands That Get Social." Banking on Social Media: The Financial Services Brands That Get Social. Brand Channel, 27 Mar. 2012. Web. 03 June 2012. <http://www.brandchannel.com/home/post/Banking-Social-Media-032712.aspx>.