The financial services industry could prove an ideal home to social media applications as government legislation scheduled for 2012 looks set to transform a sector which has changed little in hundreds of years.
Social media is hailed by many as a liberating means of engaging with customers and employees alike. Although retail is often held up as the sector to benefit most from social media, the investment industry could prove the market that needs social media most.
The government’s Retail Distribution Review, which will come into force in January 2013, will shake up the way investment, life and pensions companies sell their products. To help increase visibility of costs to consumers, independent financial advisors will no longer receive commission from financial services companies, but will charge a fee to clients.
As a result, the amount of face-to-face advice for consumers might fall. With the introduction of client fees, the emphasis could fall on wealthier clients receiving the same close attention from IFAs, with most of the mass market – comprising those on average incomes – opting to look elsewhere for advice. The government itself has responded to this need by providing an online money advice service.
The social element of web technology is powerful. Jonathan Brech, from social media advisory company ISM Search & Social, quoted figures from econsultancy.com, which found 97.09% of people questioned in a survey said their buying decisions are influenced by social groups. This is becoming more potent as social interactions become public through social media.
David Power, director at financial service consultancy Red House Limited – and previously head of life and pensions service provider Diligenta which was acquired by Tata Consultancy Services (TCS) – recently gave a presentation on what alternatives could replace the role traditionally performed by IFAs. “As a result of government regulation, IFAs will move upmarket and leave a gaping hole in the marketplace.”
David Power said banks might try to step in to fill the gap, but life and pensions suppliers could work directly with customers through social media.
“There will probably be a lot of government-sponsored advertising about the changes and it is not possible for life and pensions companies to ignore social media,” says Power.
Social media tools can be used by consumers to help them get advice from other consumers and engage directly with financial services providers.
Social media BPO services could be required for these companies who have previously outsourced business processes heavily and do not have social media skills in-house.
Service providers are already completing finance business processes and this combination with their IT skills could make outsourcing social media activity an easy decision for companies in the sector. “System integrators have moved up the value chain and are holistic suppliers,” says Power. He says suppliers will be well positioned to do the implement the social media technologies and interpret the data that companies glean from it.
Mark Bretton, head of BPO UK and Europe at TCS, says social media will fit into the financial services industry as consumers seek information in the absence of advisors.
“If there are no intermediaries, life and pensions firms will have to have some sort of site and a lot of products are sold on reputation so the social aspect is important,” says Mark Bretton.
TCS provides services to companies in the sector including Legal & General and Pearl Assurance. He says there is high demand for support coming from businesses across sectors for analytics services. “Businesses are going to get a lot of information from social media and somebody is going to have to do something with it.”
Financial services firms have had social media on their radars for some time, but an industry so heavily regulated has to be cautious.
There have been mixed feelings about using social media in the finance sector for a few years. A closed-doors meeting of bankers, social media experts and technologists at The Financial Services Club in June 2009 revealed how the banking sector – which traditionally leads technology innovation – views social media such as Facebook as Twitter.
The event, held at the Lloyds building in London, delivered a clear message that banks must embrace social media. But it also emphasised the work that needs to be done by banks to work out how and where to use social media tools.
Chris Skinner, who chairs The Financial Services Club, says things have moved on in the past few years and some finance firms are very active users of social media. “I would say about a third of banks are using social media and about a third of those are very active,” said Chris Skinner.