A survey report from the Institute for Private Investors says high-net-worth investors are using social media more, and other reports say wealth management clients are increasingly using social media to compare notes on advisers, funds, fees, strategies and deals.
In the IPI member survey, conducted in May, 38% of respondents said they actively participate in social media, such as Facebook, LinkedIn and Twitter and in forums such as the IPI's Memberlink® and blogs.
The institute is an exclusive club of about 1,100 private investors and 140 professional firms from 18 countries. Four out of five member families oversee assets of $50 million or more.
The IPI has hosted its members-only Memberlink® forum since 1998; for the past six years more than 50% of the online discussions have been about wealth advisers, said Kristi Kuechler, the institute's president.
"Members will post questions such as 'My broker offered me an opportunity for this particular fund or that particular IPO' and ask other investors if they have any knowledge of the investment," Kuechler said.
"They are not allowed to make recommendations, but a member might ask if others have had experiences with a particular adviser," she said. "Sometimes another member might offer to talk by phone, and they have a truly candid conversation."
Whether such forums actually expose bad practices and force greater transparency in the wealth management industry might be debatable, but as a community of highly influential investors, the IPI has brought its members together both online and at face-to-face meetings and seminars to talk about wealth managers, naming names and discussing the fees and commissions they pay.
Kuechler recalls a recent seminar at which one member told another he thought his adviser's fee was too high. "The member went to his adviser and got him to reduce the fee," she said.
Even in the secretive world of private equity and venture capital, private investors are using social networks, according to findings reported by David Teten and Chris Farmer in the June issue of Harvard Business Review.
Traditionally, proprietary knowledge has been considered essential. But Teten and Farmer said that their study of deal-origination best practices at more than 150 venture capital and private-equity firms, along with other research, shows that some of the top-performing investors increasingly use social media to discuss such information.
"The key is deal flow," they write. " … In order to make several deals, investors need to examine hundreds of prospects. Sharing details about their investment strategy gives them access to opportunities that they otherwise would have missed."
A survey report that Spectrem Group recently published said retail investors are using social media more to obtain financial information and investment strategy advice.
The findings indicate that this group might be headed toward more discussions about those who mind their money, however. Roughly one-third of Facebook users in the survey said they would consider using a financial adviser or provider that was recommended by a Facebook friend. Half of those under 35 said they would consider doing so.
The Spectrem report, "Social Media and the Investor," is based on a survey of 500 financial decision-makers in households with $50,000 or more in annual income who spend at least two hours a week on the Internet, including at least one hour at financial sites.
Spectrem, which is based in Chicago, said that LinkedIn seems to be the most viable target for wealth managers seeking to build their own social networks. Seventy-three percent of those who use LinkedIn said they would consider joining groups to discuss economic and investment topics.
"A wonderful way to use this would be to create a client group on LinkedIn," said George H. Walper Jr., the president of Spectrem Group. "In the future there will be more online financial communities, and this is a good way for an adviser to be forward-thinking."
