Wealthy turn to social media for investment help

Wealthy turn to social media for investment help

Will the ultrawealthy find their place in the social media explosion? A handful of entrepreneurs think so and are building businesses around it. One such entrepreneur is Caroline Garnham. She started a website, Family Bhive, in London three years ago as a ‘Facebook for the fortunate,’ where those with serious cash could interact discreetly with the similarly well-heeled.

The site has since become a magnet for asset management firms, charities and lawyers, who use its restricted online platform to fish for well-heeled clients — members’ assets have to be professionally verified — and arrange social events or link potential investors to new projects.

Individuals use the service to catch up on chatter, arrange social calendars and exchange investment ideas.“It’s a way for naturally inquisitive and like-minded people to meet away from the glare,” said Caroline, also an expert on succession and tax planning at the London law firm Lawrence Graham.

A raft of operators are coming up with their own twist in the sector. A few have moved into a niche between the high-net-worth set and the wealth management industry. The Bernard Madoff scandal shook up many wealthy investors, pushing them toward different forms of financial advice and the safety of being next to investors who are part of their community, in this case online.

“Social media is here to stay and it’s only going to get bigger for the wealthy,” said Stacey Haefele, chief executive of HNW, a marketing firm based in New York that advises wealth management firms and luxury industries. In addition, Stacey said, the rich are typically early adopters of new technology, so a new breed of young, social-media-savvy millionaires will emerge from the coming initial public offerings expected from companies like Groupon, Etsy and LinkedIn, as well as from other investments in social media. The less fortunate could lose their shirts.

But not everyone is convinced that social media will play a transformative role. Joachim H Strähle, chief executive of Bank Sarasin, the Swiss private bank and asset manager, said he had not witnessed any demand from his clients for social media tools.

Family Bhive is but one firm that has used variations on the same model to allow the wealthy to offer each other advice and tips and sometimes enter projects together. In Britain, Peers and Pi Capital have focused on bringing together wealthy individuals to share ideas and projects. Another firm, Ecademy, acts as more of a business-to-business information network.

Pi has become something of an alternative investment club and a power network for entrepreneurs and business chiefs. The group, based in London’s swanky Mayfair district, was founded in 2002 by a Florida native, David Giampaolo.

It offers its 300 members — who pay £1,000 to join and £4,000 a year in fees — access to an exclusive network, forming a kind of private equity syndicate that invests on average £15 million, or $24.4 million, to £20 million a year.

The group, which is regulated by Britain’s Financial Services Authority, “shares contacts, deal flow, intelligence and the transfer of intellectual capital,” he said.

Sharing the pain

Members have invested together in a number of deals, taking stakes in private companies in, for example, the health and fitness sector, biotechnology, gambling and transport. In so doing, they have been able to avoid the chunky fees charged by brokers or advisers on more traditional deals and they “share the pain” if deals turn sour.

The group also organises gatherings that combine the social with the financial. Recent events include meetings with Pervez Musharraf, the former Pakistani president; the musician and activist Bob Geldof; Willie Walsh, chief executive of British Airways; senior journalists from ‘The Financial Times’ and ‘The Economist’; and Danny G Alexander, the chief secretary to the British Treasury.

Giampaolo said most members must have their assets verified and that the site was profitable. A similar group is Peers, started in London in 2008 by a Dutchman, Francis Claessens. He now has a chapter in Lausanne, Switzerland. It has over 50 members with several billion pounds in combined investable assets. Its stated aim is to “provide a source of expertise, generate profitable ideas and facilitate good company.” It is a not-for-profit and has no joining or membership fees.

Last year, Finra issued guidelines for blogs and social networking sites, advising, among other things, that operators should consider prohibiting interactive e-communications that recommend specific investment products unless a registered principal has approved the content. New, probably tighter, rules are expected.

In Europe, regulators appear to have focused more on privacy issues and protecting minors than on the dissemination of financial data, which appears to have been left to national regulators. A spokeswoman for the European Commission said that depending on the advice offered, social media platforms may be covered by Europewide rules for investment services and distance selling.

As it has pushed into the business world, Family Bhive has become a platform through which wealth management firms including Merrill Lynch, Vestra Wealth, the Fine Art Fund and Investec showcase their expertise and search out clients.

The individual members include celebrities, politicians, entrepreneurs and those with family wealth. Most want to remain anonymous. The British businessman and former lawmaker Howard E Flight and the food entrepreneur Frank Brake are members.
The members intersect through messages exchanged on the site and social, charitable and business events organized through the site. It also offers editorial products tailored to clients from specialist providers like Luxury Briefing, Spears and Private Banker.
Steven Jerath, a partner and adviser at St James’s Place Wealth Management, which is based in London, has been a member of Bhive since January. While it is too early to see an immediate effect, he said that he was “positive on the website” and the model.

Jerath uses the site to post bulletins on investment advice, tax matters and market intelligence, which draw comments from potential clients. The 700 individual members are ranked by their net worth: ‘Jet’ for those worth over £100 million, about 4 per cent of members; “Jade” for the £20 million to £100 million club, or 13 per cent of members; and ‘Amber’ for those with £5 million to £20 million, representing over 80 per cent.

International Herald Tribune

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