Social media is one of the biggest digital revolutions that has transformed every aspect of our life. In recent years, the influence of social media has extended to wealth management as well, with more and more High Net Worth Individuals (HNWI) turning to social media for better investment decisions. A study by Cogent group shows that more than five million HNWI in the US and Canada use social media to help with their financial decisions. As a result, they are less likely to have a financial adviser when compared to non-social media users.
The big question is what drives them to use social media over traditional investment advisers.
Firstly, the traditional methods of investing do not appeal to Gen X and Gen Y investors because they are more tuned to technology than their older peers. Most of them have grown up seeing or using some form of technology such as computers, so they understand its potential and want to make the most of it. As of now, 70 percent of Gen Y investors and 44 percent of Gen X use social media. When the millennial generation becomes affluent, the usage of social media for wealth management is only going to increase because they will be more adept in using social media.
Besides the age and mindset, the availability of information makes it easier for HNWI to make better investment decisions. Social media gives users a larger information stream that comes through many voices. This vast amount of information reduces the chances of impulse and rash decisions, which means users are more likely to evaluate their options before investing. This is why nine out of every ten HNWI investors use social media for their research. Moreover, 70 percent of investors have changed the way they interact with an investment provider or have reallocated their investments because of something they have read on social media. These numbers go to show how a majority of HNWI trust the information on social media and are willing to manage their finances on their own.
Other than the above factors, another important reason is that the existing investment technologies used by traditional investment advisers do not appeal to many HNWI. Research shows that only 49 percent of HNWI feel comfortable with the technologies used by their advisers. This is why HNWI are two times less likely to delegate their financial research and decision making to an investment professional.
All these reasons affirm the growing influence of social media on the investment decisions of HNWI. Currently, it is estimated that 74 percent of HNWI use some form of social media and this has gone up from 52 percent in 2008. Going forward, the number of users using social media for wealth management is only going to go up due to rapid technology adoption and transfer of wealth to the millennial generation.
Above statistics show how social media has evolved into a platform for wealth management. Inspired by the success of HNWI investors, ordinary investors are also likely to embrace social media in the future for their investment decisions.
This growing use of social media presents enormous opportunities for financial service providers. It is time for these providers to change their business practices to proactively adopt social media as a part of their marketing strategy.
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