Open social networks
Don’t get me wrong: I believe in openness. I believe that social networks should be set free to self-regulate. I believe that in a perfect world, social libertarianism makes sense. I believe that good, quality, trustworthy content would bubble up and all that nasty, nefarious, spammy stuff would be drowned out.
But life’s not perfect. It’s messy and there are incredible incentives, especially in investing, to manipulate the system. Like Richard Thaler in Nudge: Improving Decisions About Health, Wealth, and Happiness
Shareholder Services 2.0
I had the opportunity to speak recently with Chuck Callan, Senior Vice President of Regulatory Affairs at Broadridge (BR), a global powerhouse in solutions for securities processing, clearing and outsourcing and investor communication. Broadridge is an interesting company — as a huge player in the outsourcing of financial reporting, they’ve taken some bold steps towards taking some core services and refreshing them with a social media twist.
The company has three recent launches of innovative products/services in this space: an investor network, online shareholder forums, and virtual shareholder meetings.
Investor Network
From Yahoo Finance message boards to SeekingAlpha to StockTwits, there are numerous investor networks already entrenched. What makes BR’s Investor Network different is that you have to be a verifiable shareholder to play. Broadridge audits share ownership to ensure only shareholders of record are enabled to participate. See a demo of how the system works here. It’s the company’s belief that ownership brings more credibility to the conversation about stocks. I don’t think that that is actually true, but more on that below.
According to Callan, Investor Network is designed for use by broker/dealers to offer to their clients:
Broker/Dealers are looking to provide social networking on a controlled, broker-branded site. Investor Network allows brokers to provide a scalable, larger network in a controlled environment. Instead of just developing their own social investor network, each broker is now able to provide an entire network spanning multiple BDs and all of their collective clients – the value proposition for the BD is that they can provide social networking in controlled branded site, integrated with single sign-on and embed it with easy links to trading.
BR had some beta testing this fall (2008) and went live just recently with their first client, FirstTrade.
Online Shareholder Forum and Virtual Shareholder Meeting
This is a set of technologies/services provided to issuers (companies with public stock) as part of Broadridge’s shareholder forum services. Offered in conjunction with upcoming stockholder meetings, Broadridge’s offering provides audited shareholders with a control number/password through which investors access a online shareholder forum system. Investors can submit questions, take surveys (why own INTC, etc.), see tabulation of results. Links are offered through the forum to Intel’s IR website, education resources, regulatory filings, and RSS feeds.
It was released two months ago and Intel was first to use the new system. BR already provides proxy services to over 1500 publicly-traded companies and believes truly that this will increase shareholder participation
Future of Financial Communications
I was interested in hearing from Chuck Callan what Broadridge sees as the eventual evolution of what’s occurring in financial reporting.
He said this:
Institutional investors have fiduciary responsibility, by and large, to vote. Individuals are not required. “Notice and Access” by the SEC rules resulted in an unintended drop in participation (drop of >75%). In other words, when investors received actual voting materials, they used to vote 20-25%. Now that they frequently receive just notice of an upcoming election, they only vote at a level of 3-5%. Because voting is perishable, a lot of people intend to do it but don’t end up doing it. Investor Network is a critical factor in addressing this drop-off.
It provides investors a means to reengage and participate more with the companies whose stock they own. It makes the online experience more attractive to investors and rebuilds participation in a way that preserves/increases efficiencies for Broker/Dealers. And if the SEC decides that a shareholder has the right to participate over a secure network with anonymity, we can do that.
Users get a better online experience by integrating this communication into a natural task environment. Investors go to their brokers’ websites to check account information. It’s right there at the login page.
The New Rules Take
I’m going to stick my neck out and break rank with some other experts in the field. In my discussions with Dominick Jones, of IRWebReport, he’s been cool to the approach that Broadridge took with its social network. Specifically, Jones explains, “BR’s network doesn’t grok the finer points of social media. e.g. accountability, identity, transparency. Social networks are made up of people with personalities. Not faceless accounts with holding indicators.” Point well made and taken. Check out what Jones has written publicly about the Investor Network.
I started this post with a rant regarding overarching policing of investor social networks. As a professional investor, I’m sensitive to the onerous requirement exacted on the industry by the SEC and FINRA. Broadridge understands this better than anyone. Their clients are not the arm-chair investor in his pajamas writing on Yahoo Finance message boards about what a great investor he is. While this person may ultimately be a user of the Investor Network, servicing the Broker/Dealer and providing value to issuers is what butters BR’s bread.
An unfettered social network just doesn’t work in finance. It can’t given the monetary incentives to game and manipulate the system.
Does actually owning a stock give you more credibility in discussing a stock? Absolutely not, but it does say that you’ve put your money where your mouth is. It means that I’m completely transparent in my motivation for discussing a stock. There are other ways of accomplishing this (like Covestor or TradeKing which actually audit trades, as well). It trebles down the noise of novices and pumpers just looking to make a point or be heard.
- By limiting the network to stockholders, Broadridge at least assures its clients that it is attempting to provide a tighter, more focused, higher quality network — something important for a B/D that doesn’t want to see its offerings degenerate into Yahoo Finance trolling (Check out the comments on Yahoo’s expert pages –they’re gross).
I think Broadridge needed to take this tack given where they sit in the financial reporting ecosystem and it’s a bold move for them. I think they’ll see more take up on the shareholder forum and virtual voting as an extension of physical, in-person shareholder meetings. Social networks do want to be free and I expect to see that the Investor Network will launch with other B/Ds but I don’t expect to see traffic and participation rivaling anything like Twitter or StockTwits. But maybe that doesn’t matter at the end of the day. Maybe these designer vertical social networks can survive and thrive with a smaller audience and higher-level participation (as long as they find a monetization engine and Broadridge can ultimately bundle this into other products and services). And that, would actually be a boon for both Broadridge, its clients, and ultimately, investors.
