Almost half of U.S. financial advisors are interacting with their clients through social media.
And the clients they chat with on Facebook aren’t just ‘tweens and millennials — about 60 percent of advisors surveyed who were active on social media had client portfolios over $20 million, Accenture found in a survey of 400 financial advisors.
“The majority (60 percent) has daily contact with clients through social media, some likely flouting their firms’ current policies against this type of activity,” the study said.
Alex Pigliucci, global managing director of Accenture wealth management services, said social media creates a huge opportunity for firms that get it right and a real risk for firms that regard it mostly as a threat. Firms will have to recruit and train advisors on the basis of their ability with social media if they are going to survive the generational change when millennials will become increasingly important as both advisors and investors.
The survey showed that millennials are conservative and mistrustful when it comes to finance. It uncovered two big perception gaps between advisors and investors in knowledge of investing where advisors are three times as likely to describe clients as very knowledgable as the clients themselves — 42 percent to 12 percent of clients. Advisors are also twice as likely as clients to describe the client investment preferences as aggressive.
The danger for advisors is that in overestimating investor knowledge, they will fall short of full explanations of an investment recommendation. For millennials in particular, this can lead to the perception the financial advisor is primarily interested in transactions.
Accenture suggested that advisors use online seminars, virtual meetings and online communities to educate investors.
“If an advisor makes a recommendation but doesn’t take time to explain it, that will erode trust,” said Pigliucci. A better way would be to make a recommendation is to push some information about the recommendation and links to outside sources to the client’s computer or tablet, and give her time to think about it.
“That changes the whole interaction, makes the process transparent.” Clients can look up information and not have to worry about looking stupid for asking questions.
Many tech-savvy clients are going to research recommendations anyway, he added.
“We found that after an advisor makes a recommendation, the next gen investors will check online and do some research before they will commit.”
Financial services firms that rely on brokers and advisors face a threat from online channels which are accumulating assets faster than full service firms, partly because of the growing popularity of passive investments such as index funds and ETFs, he added.
He thinks that financial advisors still have an important role because a lot of investors don’t feel equipped to make investment decisions.
“They don’t understand the markets well and if you can fill that void you will be successful in accumulating assets.”
Wealth management and private banking still lag in digital developments, he added, behind retail banking and well behind digital commerce leaders like Amazon. Financial firms can’t just compare themselves to their industry peers, because investors’ expectations are cross-industry — how well does the financial advisor’s firm compare to Amazon or Nordstrom, for example.
“Customers have a high expectation of how to deal with social media and they expect realtime updates and alerts. Pop me an alert and have my advisor call me; I don’t care to come into your mahogany office.”
Social media users aren’t just young people, although a firm should assume that millennials, both financial advisor recruits and investors, are digital natives. Skill and comfort levels vary across ages and individuals, but for many clients in their 60s and 70s, social media is the way they communicate with children and grandchildren around the world. They too have high expectations of social media service quality from their investment advisors.
Coming out of the financial crisis, many investment firms have been slow to realize what a reputational blow has hit them.
“A lot of firms are only just now really getting to the maturity of monitoring consumer sentiment in social media,” said Pigliucci. Software tools are available to monitor what employees are saying on social media to avoid compliance issues, but few firms have moved beyond defensive measures to adopting social media strategies which make it easy for advisors to proactively interact with social media, he added. That creates opportunity for the leaders and a danger to those firms which lag in social media adoption.
Social media has been useful for advisors to recruit new clients. Forty percent said they had gotten new clients through Facebook, 25 percent through LinkedIn, and 21 percent through Twitter.