How advisors can help clients navigate the social media noise
The frenzy in so-called meme stocks earlier this year shined a light on Reddit's expansive financial community, and perhaps more importantly, it exposed a new trend that's sweeping the nation; more Americans now use social media for financial advice.
A recent survey from investment firm TIAA found that one-third of Americans act on financial advice found on social media, and nearly the same amount of people listen to advice from influencers and celebrities.
This isn't all bad news, though. Not unlike the stock-picking newsletters in the 1990s, the information found on social media can be helpful if you know where to look. As a financial advisor, it’s unlikely that you can stop clients from following their favorite FinTok influencer or stop reading FinTwit, but there are a few things you can do to prevent them from acting on harmful advice.
Turning to the media for investment advice isn't a new concept. After all, Bloomberg TV and CNBC garner tens of millions of viewers each month, and a legacy publication like the Wall Street Journal reaches just over 3 million readers.
But what's happening on social media has never happened at such a scale before. TikTok videos tagged with the hashtag #stocktok were watched 1.6 billion times, while the more conservative hashtag #personalfinance received more than 4.5 billion views. It's not just TikTok that has gained popularity, either. Most social media platforms have carved out dedicated communities for sharing content about saving and investing. Head over to Reddit, and the popular subreddit WallStreetBets, which many blame for the GameStop and AMC drama, now boasts 10.9 million members.
So why are swarms of people rushing to social media for financial advice?
The answer comes down to access and education. There is no shortage of research suggesting that most Americans qualify as financially illiterate. For instance, a different study from TIAA found that 16% of millennials could answer basic questions about saving and investing. Pretty abysmal for the most educated generation ever.
Unfortunately, personal finance is not taught in the classroom, and in the past, most people learned about diversified portfolios and property taxes from professionals, a luxury that many can't afford. So even though more people think about their money, and how to put it to work, they don't know where to start.
Instead, they turn to the internet. A quick Google search for "how to create a diversified portfolio" surfaces nearly 25 million results, and a similar search on social media turns up just as many comments. By following the right people, you can learn just about everything there is to personal finance, from what is an exchange-traded fund to how to get out of debt, in a fun and engaging way.
But like most things on social media, it doesn't take long to come across harmful financial advice. For the uninitiated, who may take someone with a large following for granted, this type of content can lead them to make poor decisions with their money—like buying into the latest crypto scam or, worse, borrowing against their house to buy more stocks.
Social media isn’t a foreign concept to financial advisors. A 2019 survey found that nearly 92% of financial advisors use social media to connect and communicate with potential clients, but far fewer use social media to enhance their current relationships.
For financial advisors looking to build trust with clients and steer them away from harmful advice, they should consider the following:
Get in front of the stories: Not a day goes by that someone doesn’t mention meme stocks or cryptocurrencies on social media. There’s a good chance people will be sharing the same stories in the next few months or years. Prepare answers to questions like “Why shouldn’t I buy more Bitcoin” and remind them why over indexing on risky assets can derail their long-term investment plan.
Monitor what’s trending: Keep tabs on popular financial influencers and monitor what types of content they share. It won’t be hard to figure out who shares helpful advice and who promotes get rich quick schemes. Share this list with clients if they’re looking for advice outside of your area of expertise.
Make clients financially literate: There’s a good reason people use social media for financial advice. They don’t know how to manage money, plan for retirement, or save for a new home, amongst more. Educating clients on the basics of financial and investment planning can arm them with enough information to avoid some of the noise on social media.
Personalize your advice: Tech-powered investment platforms let advisors create portfolios tailored to their client’s goals, preferences, and needs. When people receive personalized services and experiences, they tend to be more satisfied with the end results. In this case, a client is less likely to feed into social media trends because they know their portfolio was created just for them.
Advisors won’t get their clients to stop scrolling on social media, but they can employ several tools to prevent clients from making hasty social-media-influenced decisions.
September 30, 2021