If your financial services/advisor is not using social media, sack them. The Cost of Inaction is too high.

WHEN the Twitter account of Associated Press was hacked last week, a single tweet was sent out: “Breaking: Two Explosions in the White House and Barack Obama is injured.”

The Dow Jones Industrial Average dropped 150 points in about four minutes, erasing about $150 billion of value. the-australian-newspaper

Once people looked outside and noticed that the White House was indeed still there and once AP had corrected the report, the market bounced back. The real questions are: how can a market be so vulnerable to a single tweet, is this a new situation and what should financial boffins be doing about social media?

In 2008, Twitter’s CEO Evan Williams tweeted about it being a great day in Seattle. He was blissfully ignorant that the twitterati would put two and two together and figure out that Twitter had gained funding from a Seattle venture capital company. The market responded accordingly. Clearly, even Twitter’s CEO did not understand the impact of social media.

Rumour, innuendo and conjecture about companies, investment, who’s hot, who’s not is grist for the mill in social media. No wonder the ASX updated their continuous disclosure guidelines this year to make it absolutely clear: the financial sector must monitor blogs, Twitter and Facebook to check whether details of secret deals are leaking. If a market-sensitive transaction is being discussed on social media, then the market must be informed. Monitoring social media is no longer optional for companies: it’s a legal requirement.

Which makes it all the more surprising that research by Comar Brunton into more than 500 retail investors in Australia found that 54 per cent considered that social media delivered “no real benefits” for investors. Only 5 per cent of investors said they relied on financial planners or brokers for advice: the rest of the time they back their own judgment or else listen to family, friends or the media. Perhaps they don’t realise social media is family and friends?

There are some great social media integrated dashboards available. I monitored the Toyota Prius brakes story unfold on Twitter, with the stock ticker open; it was fascinating to watch the price tumble in real time. Surely, even if the discussions are not from trusted friends and family, a large volume of strangers talking up or down a stock has to have some impact on investment strategies?

The financial sector’s biggest issue on social media is not ROI (Return on Investment) but COI (Cost of Inaction). A response — even “let me find out” — is preferable to silence.

Six years ago, when the Engadget technology blog received information that an Apple product would be delayed by three months and inquired of the company whether the rumour was valid, Apple responded with “We don’t engage with social media”. So Engadget published the rumour with Apple’s “no comment” response. Apple’s stock promptly tanked on massive selling, going from $107.89 to $103.42 in precisely six minutes. At the time, this wiped just over $4 billion off Apple’s market capitalisation. Oops. Apple now engages with social media.

If I was talking to financial advisers and they proudly declared to me that they did not monitor, leverage or engage with social media, I would grab my purse and back out of the room. Rapidly. The cost to both of us would just be too high.

Laurel Papworth is a social media educator and a member of Forbes magazine’s ‘Top 50 Social Media Power Influencers’ list globally. Twitter: @silkcharm

 First published in The Australian April 29 2013 (paywall)