Most asset management firms have yet to fully embrace social media. Martyn Cuff of Allianz Global Investors Europe says that in the age of Web 2.0 the time has come for the industry to elaborate web strategies in addition to their everyday IT plans
A new world order is forming, whether it is the emergence or re-emergence of countries in Asia, the growth in African capitalism driven by the commodity demands of the world, the South American growth in confidence as to its place on the world stage, or the dramatic changes in the political landscape in Northern Africa and the Middle East. By any historical standard, this would be enough for asset management professionals to get their head around. However, there is another new world order which has been forming over the past few years, albeit in the virtual world, and it is one the asset management industry has to learn to embrace.
Facebook now boasts 500 million users. This makes it the third largest “country” on the planet, with Twitter claiming 200 million, which would put it sixth on the list of largest countries.
So how does the asset management industry currently tackle the growth of the web?
To help with clarity of thinking, it is important to remember that the world wide web is only a part of the wider IT landscape that needs to be considered. Therefore, it is possible for an asset manager to think that they have a progressive approach to IT without having much of a focus on the web. However, this increasingly looks unsustainable as it is necessary to have a strategy to invest in technology across the business in both web and non-web-orientated related activities. As we all know, this should underpin the business strategy rather than simply form an isolated “science project” for the IT department.
Not surprisingly, knowledge and experience in traditional IT is significant: for example, business applications for the front office and operations, data management and straight-through processing interfacing. Experience in web-related technology and its application are much more of a developing feature. This is not only due to the ever-changing nature of the technology but also to the development of social usage, which is often driven by younger members of society.
It has been said that the web is like an addictive drug for the younger generation – or as they could be called, the “digital natives”, given they have grown up in the technology era.
Which asset managers employ people of this younger profile in influential positions in their organisation?
Web 1.0 and Web 2.0
It is helpful to think about the web in terms of content and delivery since there are different dynamics at play in these two areas.
Content needs to be differentiated between Web 1.0 and Web 2.0. According to Wikipedia, the free online encyclopedia, itself a product of Web 2.0, Web 1.0 “refers to the first stage of the World Wide Web linking webpages with hyperlinks”. This has been characterised by a one-way flow of information, through websites which contained “read-only” material.
Asset management examples of Web 1.0
• Asset managers providing corporate information about themselves, ie brochureware.
• Fund platforms, such as FundsNetwork and Hargreaves Landsdowne, providing information and dealing access to open architecture funds.
• Asset managers, such as Schroders and Aberdeen among many others, making fact sheets and fund prices available online, at the expense of traditional print media.
• Asset management firms, such as Invesco, among many others, sharing market updates direct from individual fund managers. • JP Morgan, providing access to retail investors’ accounts, though increasing disintermediation by platforms potentially makes this less relevant.
With Web 2.0, the use of the web can be characterised as the decentralisation of website content, which is now generated from the “bottom up” with many users being contributors and producers of information, as well as the traditional consumers.
Asset management examples of Web 2.0
• Derwent Capital Management is using mood swings detected via Twitter to inform its portfolio construction. This combines social media and behavioural finance concepts.
• Man Group is using the power of the internet to take hundreds of brokers’ recommendations, processing them via computer algorithms to generate trades for an exchange-traded fund.
• Individual traders running blogs and sharing news, gossip and ideas.
It can be argued that these last two examples could be Web 1.5, which shows the challenge in finding real life examples of Web 2.0 in use within asset management.
Traditionally, delivery meant sitting in front of a desk-based PC. Then along came the laptop and we were all mobile. After that came the next wave of mobile, namely smart phones and today tablets are complementing the growth in mobile consumption. Therefore, the reality is that consumption, and hence delivery of content within the digital space, takes many paths.
This diversity is demanded across the age range from baby boomers to Generation Z and, like all forms of client and marketing communication, it is important to understand the profile of the users of these different communication paths. For example, studies suggest that the average user age of LinkedIn is mid 40s whereas average user age of Bebo and MySpace is much younger.
Asset management examples of using diverse delivery channels: External
• Baring Asset Management has rolled out an iPhone application giving European investors access to fund prices via their mobile handsets.
• Fidelity launched its iPhone application, giving investors access to data and performance for more than 1,100 funds available on its FundsNetwork platform.
• Mirae Asset released its dedicated Emerging Market Experts iPhone application. Investors are able to tap into an “emerging-market toolbox”, weekly commentary on the outlook for the Bric [Brazil, Russia, India and China] countries and expert insights including video clips from Mirae’s emerging-market team.
• Nordea Investment Funds rolled out its iPhone app, allowing users to view net asset values and daily performance figures, in addition to information on fund managers and portfolios, and watch short videos on investment strategy.
• Dreyfus Asset Management, among others, has provided its US sales force with iPads, partly to enrich the quality of the client service and sales experience.
• Nearly all asset management firms have traditional websites accessed via mobile and static devices.
• Fidelity and Pimco use Facebook to broadcast messages and build a community of followers.
• Asset management staff either within the same company or across companies are increasingly connected via LinkedIn.
• RBC Dexia, among most securities service providers, offers clients access via its extranets to core operational processing platforms such as custody, fund accounting and transfer agency.
• Nearly all asset management firms have internal intranets with varying degrees of content which can be accessed by staff across regions. • Bertram Capital, a private equity manager, uses Salesforce.com via the “cloud” to provide a tracking tool for potential deals and business contacts.
• Asset managers such as JP Morgan use Facebook as an internal community communication forum.
• A number use Microsoft SharePoint for business process automation, knowledge management and team collaboration.
So what do these examples tell us about the fusion of asset management with the web? In terms of content, it is much easier to find examples of Web 1.0 than it is Web 2.0. Therefore, it is probably fair to draw the conclusion that asset management has yet to embrace social media to any great extent. This is not to say that Web 1.0 and 2.0 are binary in nature; rather, 2.0 can build upon the existing 1.0 base maintained by an asset manager thus enhancing the 1.0 presence remains very important.
On the manufacturing side, should this rather slow pace of adoption be viewed negatively, in the sense that the industry is a late adopter? Oris it just the nature of the industry, where information advantage is highly prized as the source of alpha and the last thing an asset manager wants to do is to diffuse that advantage? This could be short-sighted. As information becomes evermore democratised, is it inevitable that we will end up in a world of perfect information symmetry? And if so, where does the alpha come from?
Perhaps Web 2.0 and social media are much more relevant, at least for the medium term, to the distribution side of the business where the way that consumers and companies interact is developing at a fairly rapid speed. These consumers want a much greater say in what they see, when, where and how. In other words, they want greater control of their life and this is recognised elsewhere in financial services by, for example, Mint.com, which provides individuals with an X-ray view of their overall income and expenditure.
It is a simple extension of thinking to apply such a mindset to client reporting, where a big impact could be seen. For example, some clients may be happy to receive standard and static reports on a monthly basis whereas others may want real time, configurable reporting. The demands of these two examples are very different and this is made more complex when considering retail and institutional clients.
For retail clients, there has been an increasing disintermediation from the asset manager in favour of platforms of one sort or another. Therefore, even if an asset manager wants to engage heavily with its end clients, how is it known who they are? Surely this presents an opportunity for asset managers to partly overcome this difficulty of end-investor identification by communicating, at least in a general fashion, with society.
On the institutional side, there is a greater likelihood of knowing the immediate investor and thus to be able to configure an engaging reporting relationship – though this could be more difficult in the case of the ultimate end investors in a pension scheme, for example.
Either way, asset managers failing to react to this shift, which is partly generational in nature, could struggle to connect with clients. Given that trust in financial services has taken a bit of a battering over the past few years, improving the emotional and practical connections with clients needs to be a priority. After all, asset managers are only fiduciaries of someone else’s money.
It should also not be forgotten that web-based technologies can be used internally within asset management firms to break down silos, encourage knowledge management and generally connect employees in an increasingly efficient and speedy manner.
Major reasons are the industry may be taking cautious steps with the web include regulation and brand management. It is one thing for a few friends to share gossip between themselves on a social network but it is an entirely different matter for asset managers to be interacting with the wider society to present market views, recommend products and build up a brand. The web moves quickly and it is difficult to retract something once it is published and stop it spreading. With so many regulations, a mistake can quickly get out of control.
However, looking at this from the other angle, society will talk about an asset manager whether they like it or not. Indeed, some firms may well want to evoke the spirit of Oscar Wilde when he said: “The only thing worse than being talked about is not being talked about.”
As time goes by, such dialogue is likely to be conducted using the web more than ever and, hopefully, undertaken by responsible individuals. But there is of course scope for rogue elements to conduct a negative viral marketing campaign. Therefore, standing on the sidelines and watching the societal conversation may need to be replaced by active engagement within the various channels to defend the asset manager’s brand where it is being unfairly treated and on a more positive note, garner a positive reputation.
For now, it will have to be expected that if the predominance of users are the younger generation then they may be vocal but may not be wealthy. Therefore, gaining immediate financial benefits may be difficult for asset managers. But this should not be a deterrent.
Another notable reason for caution is security. Cybercrime is a real issue in the IT world. Of course, crime takes place in the analogue world as well, so this again should not be a reason to stay away from the web.
One thing is clear, a web strategy as part of a wider IT strategy that covers the combination of content and delivery is required. This should not be separate from the business model and operating model of an asset management firm; rather it must be embedded within it and be part of the ongoing digitisation of the asset manager’s business. fe
Martyn Cuff is a managing director at Allianz Global Investors Europe
©2011 funds europe