This article was originally commissioned and published in January 2013 for Investment Life & Pensions Moneyfacts publication. Tom Murray, Head of Product Strategy at Exaxe, explores the rise of social media and considers why advisers and providers must find ways to be included within these trusted networks.
Trust and Social Media
[dropcap letter="S"]ociety has changed. The advent of social media has slowly but dramatically changed the way people interact with the world and all business types, including the financial services sector, have to rethink their whole way of doing business in order to cope with the new landscape that has been formed.
In the early days, it was easy to dismiss social sites such as Facebook, MySpace and Bebo as playgrounds for teenagers but the speed with which they have been adopted by the adult population and become an integral part of their everyday life has been astonishing and the result is amazing. People’s social networks now integrate others that they have met physically with those they have only met virtually, and the difference between the two is fading.
There are many areas of life affected by this change; one is the new tendency people have to trust total strangers, whom they believe they know very well even though the only contact with these individuals has been virtual. It is still too early to say what will be the final result of these sites on our concepts of friendship, identity and privacy, but it is certain that the consequences for human behaviour will be dramatic.
Of particular interest to those working in the financial services arena is the change in terms of where trust is placed by the individual. Up until recently, people who didn’t work in legal, medical or financial services deferred to expertise from those who did. Today, the ubiquity of internet access means that these experts are constantly challenged by consumer, whose arguments are based on information gleaned from scanning the Internet.
A better informed consumer
The upside of this is a better informed consumer, whether they are consuming retail, legal, medical or financial services. The downside is that the information can be suspect and there is a danger of incorrect information being believed by those who do not have the expertise to separate the wheat of true research and wisdom from the chaff of prejudice, wishful thinking and vested interests.
The availability of so much uncontrolled information and opinion leads to an anomaly where the consumer believes themselves to be better informed and in a position to challenge expert opinion. However they may actually be in a worse position as instead of no information, they have wrong information and could already have their minds closed to the views of the expert even before interaction with him or her has started.
It is clear that the danger of such approaches are significant. The consumer is living in a fool’s paradise of believing that they understand the medical or financial issue when all they have is a smattering of facts and opinions without the ability to understand and process them.
Why is this so? What makes people believe that 20 minutes on Google makes them expert enough to make major decisions on medical grounds or on legal matters than someone who has spent years in college followed by a lifetime of working in the particular field? There is a danger that the availability of information is now breeding a contempt of intelligence and wisdom such that many people prefer to believe their own or their acquaintances’ diagnoses and remedies rather than that of the people who have studied and practised for years in the field and have the intelligence and training to analyse the facts. This trend is worrying for those in the financial services sector, who are likely to be pilloried by individuals who have bought the wrong product based on unofficial advice from those who are not capable of offering that advice.
All companies need to be very careful of this sudden change in how people are approaching decision making. The consumer decision-making process was always affected by word of mouth but social networks allow this to be process to spread like wildfire across huge audiences in a very short space of time. The result is that effect of one individual’s bad experience with a company can be multiplied exponentially; on the bright side, the same is true for good experiences.
So far so good, but what if the information supplier is incorrect or has had a bad experience that incorrectly ascribed to the product and / or service? The damage that can be done to a company’s brand and reputation could be severe, if not catastrophic, and retractions or apologies will not necessarily get the publicity that the original complaint received.
So what does this mean for businesses? Firstly, it is imperative that we do not ignore the whole social media phenomenon. By this, I don’t mean that we should lash up a Facebook page replete with old advertising and start throwing out 140 character advertisements on Twitter. I mean we need to consider how this whole new approach to trusted circles of friends family, essentially trusted networks, is changing society and to define the place of their company within the new virtual social landscape that has come into being.
For the insurance sector, much research has been done in terms of who people go to for their financial advice. A consumer behaviour survey carried out by the Association of British Insurers (ABI) in 2011 showed that the most used and most trusted source of advice for financial matters was friends and family. This has probably always been the case for we trust friends and family to give us disinterested advice that is focused on our best interests.
The trouble is whereas prior to social networking sites, our immediate circle of friends and family whom we would discuss issues as personal as our financial situation with was relatively small and well known to us, the less discriminatory approach of social networks has resulted in far larger circles of ‘friends’ and distant family with whom we are now in regular contact. Witness those with circles of c.500 friends; an amount which is incompatible with any sense of truly knowing people or with them truly knowing you.
The perceived anonymity of the Internet means that people are sharing far more information with this wider group than would previously have been the case. As a result, individuals are far more likely to post questions regarding financial matters to this larger group and to reveal more of their personal financial situation than they ever would in real life. If the same 500 people were assembled in a room, nobody would stand up in front of them to discuss their personal financial decisions and yet they will give out this information to the same group in the virtual room of the social network. So financial services firms are now competing to give advice against a much larger group which have attained ‘trusted’ status with the individual consumer.
Secondly we have to look at the information and advice that they receive. There are those who claim that the wider group can provide better advice, based on the fact that they comprise a bigger pool of experience, and that they are just as disinterested as the original close-knit family and friends circle. This is not necessarily true however. People who have bought various products tend to look for affirmation by encouraging others to do the same thing. Therefore they are far more likely to recommend that people follow their own example and purchase the same products to solve what they believe are the same issues in order to validate their own decision-making process.
Thirdly, it is amazing how the Internet age can quickly spread rumours and what is pure speculation on behalf of one individual can quickly become accepted fact as it is retweeted and passed from one social media environment to another. Sometimes this is harmless, as in the case of celebrity gossip. In other cases it is distinctly harmful; racist abuse and accusations of criminal behaviour have circulated across the Internet and achieved the status of accepted truth without anybody bothering to pause and confirm the fact of whatever is being reported.
Similarly, trends in terms of consumer purchases have also seen major surges based on Internet chatter. Again, in terms of a lot of consumer goods, this is relatively trivial as it doesn't really matter which brand of jeans or coffee is currently in vogue or what type of accessories achieve the ‘must-have’ status that leads to mega-sales.
Financial products are different as the effect of their purchase can echo down through the decades and for long-term products such as pensions or investments, the consequences of getting the approach wrong can affect a person’s whole life. This is where the practice of trusting people who don’t have any training in the market rather than getting professional advice can be severely detrimental to the financial well-being of the individual and has the potential to ruin their life.
Trust in the advice you are getting is vital in order to feel confident you are making the right decisions. People will always trust their family and friends and so rather than fight against it, financial services firms need to work out ways to be included within the trusted networks rather than just trying to contradict it from the outside. The question for all of us is how can we get ourselves “friended” as a social or virtual friend by our clients and prospects?
At the outset, we need to be active participants in the social media sphere but this activity must be controlled and focused. We need to know our role in the network. Think of a group of friends. Generally, they are not all alike. They integrate well as a group because each brings different personalities and characteristics to the group. Everybody can’t be the organised one or the wild one or the quiet one. What will work for a trendy fashion retailer or for a music supplier will not work for serious financial services company. People will be wary of anything that smacks of gimmickry from those who are looking after their money, much in the way that groups on holiday often leave the travel arrangements to the more efficient member of the group rather than to the wild one whose contribution to the group is more about bringing fun to the group and getting them to do things they wouldn't have done before.
We shouldn't be afraid of being serious – it’s not the same thing as boring. Nor should we be afraid to be quiet when we've got nothing to say. At least that way, when we do communicate across the social networks, our words will be taken seriously. Once expertise is established, we are more likely to be consulted directly when financial decisions are being made, more like a wise elder uncle than a madcap best friend.
Devising a strategy
Understanding the role of social networks and the role of the company within it is vital for all companies and financial services are no exception, but growing a role on the networks is not straightforward and will require a careful strategy, thinking about what the company’s role in the network should be, and will need significant resources devoted to it.
Social networks – like them or loathe them, we can’t ignore them. While the popularity of individual sites such as My Space, Facebook or Twitter may wax and wane, the interlinking of people through the Internet is here to stay. Financial services firms need to understand this new environment and amend strategic plans in order to put themselves at the heart of this huge number of virtual networks.
What do you think? Let us know in the comments below!
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