Financial services: Transparency through social media
The current situation
To me, transparency is defined in 2 way:
1. People need to feel secure and know that their money is protected - part of this is knowing what banks and other financial services institutions are doing with it.
2. Clear, simple fee structures and products that are easy to understand and help people make sure they know what they are signing up for.
While the conversational, sharing mentality of social media has enabled this information to exist intrinsically, albeit on a small scale, very few financial institutions are hosting open discussion platforms for customers and investors because of data and security restrictions.
A recent survey from the Institute for Private Investors (IPI) has shown that high net worth investors are integrating social media into their lives more than ever before. The survey, conducted in May this year, found that 38% percent of respondents actively participate in social media, such as Facebook, LinkedIn, Twitter, forums and blogs.
Other recent studies indicate that wealth management clients are increasingly using social media to compare notes on advisors, funds, fees, strategies and deals. And according to the findings from a report in the Harvard Business Review in June, private equity firms, venture capital and private investors are also using social networks to discuss industry related information.
Whether social media use of this kind actually exposes bad practices and forces better levels of transparency is debatable. However, the increased use of social media in the financial services industry certainly highlights the need for greater transparency online in order to stay ahead of the game.
What does the future hold?
The willingness to engage in open conversation through social media is vitally important for building trust in today's world. In the future, customers will need an increased level of disclosure, peer review and transparency from their financial services providers, and social media offers the perfect medium by which to do this.
A recent article in Computer Weekly highlights that when new modes of social media interaction intersect with the regulatory demands for transparency, it will form essential part of how financial services function online. Failures in transparency (like the Madoff scandal) will be challenged more robustly and at an earlier stage as customer and investor decisions will be predicated on better practice, better communication and clearer fee and product structures.
Transparency through social media may even take the form of something similar to what Saffron building society do. The Chief Executive, Andy Golding, writes his own blog offering his views on Saffron news and the industry as a whole, as we all communicating with Saffron's members and staff, in order to develop a level of transparency.
Yes, Saffron is a relatively small institution but perhaps Golding's activity is what's needed in order for financial services brands to retain and acquire new customers and investors in the future.