Feature

Understanding securityholders sources of information

By Andrew McClintock, Manager, Client Solutions Group, Computershare
A recent American study found 61 per cent of adults now look online for health information.1 In Australia, The Age recently quoted findings from a survey which found one in every five Australians misuse prescription and over-thecounter medications, often thanks to information gathered via the global search engine, Google.2 Compare that to some 20 years ago, it was unthinkable to consider asking anyone but a trusted medical professional for such advice. If we trust the quality of advice sourced from the internet for something as important as our health, do we also trust the internet for other high-involvement decisions such as where and how to invest our money? The rapid development of web-based communication channels has led to the rise of social media which, for better or worse, has made even more unverified information easily available. To better understand how and where retail investors obtain their investment information, Computershare recently surveyed 2,000 securityholders.3

The Old Schoolers

This group uses traditional media (for example, TV, radio, print media and paper-based company communications) to access investment information. They represent almost 17 per cent of total respondents. All Old Schoolers have internet access either at home, at work (or both) and use the internet for other purposes. So even though they are active on the Internet, they simply preferred the traditional mainstream media when making investment decisions. It is important to note that among this group, more than 90 per cent have concerns with sourcing investment information online, with the key ones set out in Table 1. Table 1: Key findings Old Schoolers Did not know where to find information online Concerned about the credibility of online information Concerned about security issues online Did not make investment decisions by themselves Other reasons: lack of time, need help to use the internet 28% 25% 21% 17% 9%

Where do investors currently find investment information?

More than one-third of respondents use a stockbroker to obtain investment information via face-to-face meetings. With brokers being the traditional source of investment information for many retail investors, it isnt surprising that they come up as the preferred channel. However, our research also found that there are other options for finding investment information in this digital age. Our research found investors were generally divided into three categories. Weve called them: the Old Schoolers (the users of traditional media such as television, radio and print) the Quick Pickers (the savvy internet and e-communications users) and the Squids (the multi-channel users who are open to social media).

The Quick Pickers

This group generally accesses investment information via websites and online subscriptions, including online versions of newspapers, magazines, newsletters, periodicals and blogs, which supply the delivery mechanism for providing the most up-to-date information. They represent the majority of respondents (74 per cent). According to an online survey conducted by Forbes in 2008, 65 per cent of individual investors considered the internet their most important source of investment information. This was an increase of almost 29 per cent from a similar survey in 2005.4 Although the securityholders in this group were familiar with finding investment information online, they had yet to expand their sources to include social media sites. The main reasons for

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not utilising social media to source investment information are set out in Table 2. Table 2: Key findings Quick Pickers Concerns about the credibility of information Not relevant for them Concerns about security issues Other reasons including time comsuming, privacy issues, lack of awareness and did not consider social media as the right channel 36% 30% 26% 8%

Many respondents (44 per cent) felt social media communication channels should be used as needed, or by request only. This suggests that companies need a clear strategy for sharing information via this medium, rather than simply having a presence. A significant proportion (33 per cent) believed social media should actively be used as a tool to communicate investment advice to securityholders. Further, 20 per cent of the Squids believed that social media shouldnt be used by companies to communicate with securityholders. This again may suggest a lingering doubt over issues of securityholder privacy and risks of fraud. Figure 1: How should companies use social media to communicate with securityholders?

Other reasons (eight per cent) include time consuming, privacy issues, lack of awareness of social media as an investment information source and did not consider social media as the right channel to find investment information. When asked if they would be likely to use social media for investment information in the next one to three years, only nine per cent of the Quick Pickers said Yes and 23 per cent said Maybe. The remaining 68 per cent believed they would not be likely to use social media for investment information. While this group may be web savvy, they remained unconvinced of the credibility of the broader social media channels as a legitimate source of investment advice.

3%
As a tool to communicate with securityholders

20%

33%

As needed or by request only

44%

Never Other

The Squids
While the respondents in this group are in reality a subset of The Quick Pickers, the difference is that these respondents actively use social media to access investment information, marking them as the most resourceful, multi-channel users of the internet. Social media is a relatively new form of online communication which facilitates content sharing and the exchange of ideas among users in a community-style environment. Well-recognised examples include Facebook and Twitter while popular investment examples include HotCopper and Topstocks (in Australia) and SeekingAlpha and TheMotleyFool (from overseas). Even though the use of social media has skyrocketed in the past five years (Facebook today has more than 500 million active users!5), our research found only eight per cent of overall respondents use social media for investment information. Among that subset, 37 per cent are active contributors on social media sites. While 79 per cent of Fortune 100 companies have embraced social media strategies6 to engage with their customers and use it as a sales channel, other organisations are taking a wait-andsee approach. Interestingly, our research indicates that over 75 per cent of social media users believed companies should have a presence in social media channels. We believe this is due to its key benefits of immediate engagement, ease of use, and degree of interactivity.

Frequency of internet use for investment information

Table 3 shows how often two groups of securityholders go online to find investment information. The Squids are highly active on the web with more than half of them using it for investment information every day. We suspect these are the day traders or highly involved investors, constantly searching multiple sources for all types of information on which to base their investment decisions. Table 3: Frequency of internet use to find investment information Frequency Daily A few times a week Weekly Less than once a week The Squids 55% 22% 10% 13% The Quick Pickers 39% 26% 11% 23%

The age correlation

We analysed the respondent groups of users by cross-dividing them into four age groups: 25 years and below, 26 to 45 years, 46 to 65 years and 66 years and above.

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A surprising fact emerged which seemed to refute the widely held belief that the elderly are less receptive to e-communications.7 It is the 66 years and above group which shows the highest percentage of the Quick Pickers at 76 per cent. In fact, the amount of traditional users in this age group is only three per cent more than that in the supposedly more web savvy 25 years and below group. In contrast, the use of social media shows an obvious correlation with age group the older the age group, the lower the percentage of Squids. (See Figure 2.) Figure 2: Investment information channel by age group
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 25 and below 26 45 46 65 66 and over

The trusted source

We asked the Quick Pickers and the Squids to rank their sources of investment information in order of importance. Table 4 compares their ranking from the most important to the least important. Table 4: Sources of investment information The Quick Pickers (internet and e-communications users) 1 Online news and professional information services (for example AFR. com.au, Forbes.com) Brokers website and e-news ASX website 1 The Squids (Social media users) ASX website

3% 21% 18% 11% 18%

Squids Old Schoolers

7% 18% 21%

2 3

2 3

Companys website and e-communications Online news and professional information services (for example AFR. com.au, Forbes.com) Brokers website and e-news Financial blogs (for example, Seeking Alpha, Motley Fool) Investment forums (for example, Aussie Stock Forums, Hot Copper) Social networks (for example Facebook, Twitter, Stock Twits) Online webinars

71% 61%

75%

76%
Quick Pickers

Companys website and e-communications

4 5

The mature market

A surprising finding of our study was that the largest market that is sitting latent for companies to tap into, should they wish to use social media, is the current 66 years and above age group. Companies wishing to engage with this segment need to address the barriers (credibility, relevance, security) and learn more about that groups preferences and behaviours in order to engage with them effectively. According to the Australian Governments Treasury report, over the next 40 years, the proportion of the population over 65 years old will almost double to around 25 per cent.8 This means the current 25 years and below and part of the 26 to 46 years will make up almost a quarter of the ageing population. Considering they are among the highest users of social media right now, it is possible that the use of social media will grow exponentially and play a leading role in how investors source investment information in the future. Companies should note this trend and consider including social media as an additional communications vehicle for its key stakeholder groups, such as customers and investors. The benefits of this include more engaged stakeholders that can be reached via a cost-effective interaction channel. 8

The most interesting aspect of the results in Table 4 is that even among social media users, social media sites were deemed less trustworthy than professional and established company-branded sources. However, there may be another way of looking at the findings. If an organisation takes ownership of its own social media strategy, as opposed to an independent aggregator or third-party supplier, it is likely that investors will embrace the medium and the benefits it can provide. In addition, where a blog or website is rated highly among other social media users, it is deemed to be more trustworthy on the basis that feedback from the community helps the most beneficial or most useful sites become more popular. With trust being the key concern, companies need to address the credibility of information sources and build trust with their stakeholders proactively. Stefan Grafe, the founder of Mext Consulting and author of Trust Me, has worked with global

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companies including Nokia, AXA, HSBC and Deutsche Bank to drive brand engagement and business growth by building trust. According to Stefan: Organisations need to understand that trust is driven by six distinct facets stability, development, relationship, benefit, competence and vision. Trust and credibility can be built by understanding which of the trust facets is best built with which medium and therefore which messaging. With social media, companies have at their disposal another channel to engage investors and customers.

media users trust a site more when it is highly rated by other users. Thus, companies could make use of this compounding power to build credibility through user endorsement. On the flipside, companies should be aware that any credibility issues not managed well could also spread as quickly, to potentially disastrous effect. All that said, while our survey points to a growing trend in the sourcing of investment information online, the question still remains how trustworthy is the source? A group of doctors based at the Princess Alexandra Hospital in Brisbane did some research where they googled the symptoms of 26 cases.10 And as it turns out, the web search came up with the right diagnosis in 15 of those cases. That equates to 57.7 per cent accuracy, or to put it more succinctly, half truths. Now thats food for thought for any investor. To learn more about investor communications strategies, contact Andrew McClintock at andrew.mcclintock@computershare.com.au.
Notes 1 Pew Research Centre, 2009, 61% of American adults look online for health information, www.pewinternet.org/Press-Releases/2009/TheSocial-Life-of-Health-Information.aspx, [8 October 2010] 2 Whyte S, 2010, Patients warned off Dr Google, The Age, 26 September, www.theage.com.au/national/patients-warned-off-drgoogle-20100925-15rob.html [8 October 2010] 3 A total of 2,179 securityholders responded to the survey, a majority of whom resided in Australia and New Zealand (97 per cent) 4 Sachoff M, 2009, Investors say Internet most important source of Information, WebProNews, 26 January, www.webpronews.com/ topnews/2009/01/26/investors-say-internet-most-important-source-ofinformation, [9 October 2010] 5 Facebook, 2010, Press Room, Facebook, http://www.facebook.com/ press/info.php?statistics, [9 October 2010] 6 Bloch E, 2010, How are companies leveraging social media?. FlowTown, 7 March, http://www.flowtown.com/blog/how-arecompanies-leveraging-social-media, [9 October 2010] 7 Computershare, 2009, Investor Research Factors Affecting e-Communications Behaviour 8 Treasury, 2004, Australias Demographic Challenges, The Treasury, Australian Government, http://demographics.treasury.gov.au/ content/_download/australias_demographic_challenges/html/adc-04. asp [8 October 2010] 9 Australian Investor Relations Association and Financial & Corporate Relations, 2010, Investors reminded to verify social media information, joint media release, 20 September, http://aira.org. au/images/stories/AIRA_PDFs/MEDIA_RELEASE_-_IR_SOCIAL_ MEDIA_20092010.pdf [8 October 2010] 10 Tang H and Ng J, 2006, Googling for a diagnosisuse of Google as a diagnostic aid: internet based study, British Medical Journal, Vol 333, pp 11431145, http://www.bmj.com/content/333/7579/1143.full. pdf?sid=88cf3585-eac8-4552-a12b-be4603f3f49f [8 October 2010]

The challenges ahead

It is clear that retail investors, like most consumer groups, have diverse needs when seeking out trustworthy investment advice. While some prefer the more tangible, traditional investment information sources, others prefer online resources, most likely due to the convenience and currency of information that the internet delivers. The pervasive use of the internet is undeniable. Therefore, we can draw similarities between general societal attitudes towards using the internet to source information and the trend in retail investors researching online. In the world of social media, services such as Twitter enable individuals and companies to get in touch with literally millions of followers quickly, easily and almost immediately. Similarly, Facebook and YouTube, which have millions of repeat visitors daily, provide a user-friendly and cost-effective environment to communicate with specific stakeholder groups where ideas and experiences are shared. The challenge of these media is to remedy investor concerns regarding the credibility and security of their messages. So while professional information services and company websites are still the most preferred sources of information, the rise in popularity and acceptance of social media among consumers represents a significant opportunity for companies. In fact, a recent survey by the Australian Investor Relations Association (AIRA) found one-fifth of those professionals surveyed (stockbroking analysts and institutional investors) had made investment decisions which were influenced by information from social media!9 Given the cost-saving potential for many large organisations in moving away from traditional mail, this may be reason enough to test the waters with social media channels when communicating with potential retail investors. In addition, the delivery potential of the internet contributes to fostering good corporate governance through immediacy of information, two-way engagement, greater transparency of company information and better stakeholder experience. The nature of social media dictates that the ripple effect is well and truly present in the online environment: 70 per cent of social

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