A pedestrian checks her smartphone as she walks across London Bridge towards the City of London financial district, as The Shard tower stands on the horizon in London, U.K., on Monday, Jan. 4, 2016. U.K. stocks got no respite in the new year, after their worst annual drop since 2011, amid investor concern over a slowdown in China, the biggest consumer of commodities. Photographer: Simon Dawson/Bloomberg
© Bloomberg

Woodford Investment Management has not spent a penny on traditional advertising since the fund boutique launched in 2014, yet the company has already raised £14bn in capital.

Much of that is due to the pull of Neil Woodford, the renowned fund manager who set up the company after leaving Invesco Perpetual, the UK investment house.

But the asset management start-up has also carried out a marketing campaign through less traditional routes. “We made a conscious decision not to pay for advertising,” says Paul Farrow, head of corporate communications at Woodford IM.

“We wanted to use social media to educate and inform, but also to communicate and engage. You can’t get the message across in an ad.”

Jet Lali, head of digital at Alpha FMC, an asset management consultancy, says social media provides “a great way for smaller managers to even the playing field”.

Woodford may have an unusually purist approach to marketing and communication, but it is not alone among asset managers in recognising and attempting to harness the power of social media.

Vanguard was an early adopter of the concept, hiring a head of social communications eight years ago, when other asset managers regarded this position as a subsidiary of other communications roles.

The company has attracted almost $1tn of net inflows from investors over the past five years, more than twice the sum attracted by the entire hedge fund industry over the same period.

Barbara Wall, a managing director at Cerulli Associates, the research firm, says an increasing number of asset managers are engaging on social media in recognition of its marketing benefits. Research by Cerulli last year found 58 per cent of fund houses plan to add to their social media headcount.

The social media platforms used by asset managers are primarily LinkedIn, designed for professional networking; Twitter, where brief messages or tweets are used for both corporate and personal communications; and Facebook, which is an overwhelmingly personal social network.

In addition, many companies maintain blogs. They can be viewed as social media, although the interaction on them is more under the control of the hosts.

This question of control is the main reason, apart from Luddite tendencies, that fund houses shy away from a wholehearted embrace of social media.

“There is the fear it could damage their brand,” says Ms Wall. Once something foolish is said on social media, it can be very difficult for a company to take it back or limit the reputational damage.

The customer care agent at Tesco, the supermarket, who tweeted that staff were about to “hit the hay” just after the supermarket’s meat products had been found to contain horsemeat discovered this the hard way.

Another challenge is that it can be difficult to find people who have both financial services expertise and social media experience to manage a company’s online presence.

Even if a head of social media can be found, that is not sufficient. Experts suggest fund managers and senior executives also need to be directly involved in a company’s social media efforts.

“The fewer layers there are between the end investors and the fund managers or other opinion formers, the better,” says Neil Curham, executive director at Alpha FMC.

“But how do you get fund managers ready to take part in the conversation; how do you make sure it’s compliant?”

Alpha FMC conducted research on how well fund houses are doing in social media. It measured them on presence, responsiveness and how well tailored their approach was to each different platform.

“There are only three companies, Fidelity US, Vanguard and Woodford, that have very active, two-way conversations. The ones who do it best are largely talking to the end investors,” says Mr Lali.

Social communication
The top 5 most effective users of social media
1 Fidelity UK
2 Vanguard (US)
3 Woodford
4 LGIM
5 JPMAM
Source: Alpha FMC

Schroders, Europe’s second-largest listed fund company, did not rank among the top scorers on the Alpha FMC leader board.

But James Cardew, global head of marketing at Schroders, says social media may “on a two- or three-year view” become the dominant marketing channel for asset managers.

“People are getting overwhelmed by data, and social media is a way for people to choose who to engage with,” he says.

It is important to engage with clients and consumers on the platform they use, rather than attempting to dragoon them all into one channel, according to Mr Cardew.

“We started out thinking we would use LinkedIn for business, Twitter for journalists and Facebook for graduate recruitment,” he says. In the event, Twitter was the most popular platform for engagement, so that is where Schroders has focused its efforts.

For fund managers with aspirations to be video stars, YouTube also offers an opportunity as a useful way to reach customers at times when they need the reassurance of a friendly face, rather than an anonymous typist behind a screen.

“A year ago, when markets crashed, Neil [Woodford] sat in his office with our digital guy, they made a film and it was out by four o’clock,” says Mr Farrow.

This ability to engage quickly and directly with investors is why Ms Wall says asset managers that are eschewing social media are “missing a trick”.

Meet the Bogleheads: Online community of Vanguard’s ‘fanboys’

Jack Bogle, founder and retired CEO of The Vanguard Group, speaks during the Global Wealth Management Summit in New York June 17, 2014. REUTERS/Shannon Stapleton
Jack Bogle, Vanguard’s founder © Reuters

Among the asset managers attempting to establish themselves in the digital world, Vanguard has a big advantage: the existence of a group of investors who call themselves “Bogleheads”.

These are private individuals who are convinced by the investment philosophy espoused by Jack Bogle, Vanguard’s founder. In terms of investment, this involves setting an asset allocation strategy, implementing it as cheaply as possible (which means using passive funds in most cases) and sticking with the plan throughout the vicissitudes of market cycles.

The Bogleheads, who are entirely independent of Vanguard, have a well-developed online community, including forum boards where they discuss questions of investment and personal finance and an educational website developed collaboratively by the group.

Vanguard has been relatively measured in its engagement with this enthusiastic group, described as “fanboys” by Jet Lali, head of digital practice at Alpha FMC. “They [Vanguard] interject into the conversation when people get facts wrong, but otherwise they stand back,” says Mr Lali.

Vanguard’s official comment is just as cautious: “In many ways, it is a mutually beneficial relationship, as both Vanguard and the Bogleheads have the same intention to give investors the best chance for investment success,” says a spokesperson.

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