Social media to reboot financial advice

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Social media promises sweeping changes in the financial market as it revolutionizes the financial learning habits of young Canadian investors.

About 90% of investors under the age of 35 use the Internet as their source for financial information and are less likely to use a financial advisor, according to a recent study conducted by the Investor Education Fund (IEF), a not-for-profit organization that offers unbiased financial information.

The findings exposed a generation gap in learning habits, preferences and attitudes of young and old Canadians.

"Seven out of ten people surveyed who were 35 or older cite advisors as information sources, compared to just three out of ten in the 20-34 group," says Tom Hamza, president, IEF. "In addition, 90% of the under 35s use the Internet as a source for financial information versus just 40% of people 35+."

The results of the study raise questions as to whether the tweeting crowds are rewriting the rules of financial research.

It's the shape of things to come, say those ahead of the game.

"Yes, social media will be here for a long period of time. It is a new trend and advisors know it," says Scott McNiece, a financial advisor with Monarch Wealth Corporation in Toronto.

The finding of the study revealed attitudes regarding the financial information that young Canadians want and how they want to get it. Those under 35 years of age are more peer-oriented and made extensive use of social media to seek out the views of like-minded people in blogs and forums.

Many financial advisors in Canada are leveraging this trend to build and expand their business. They are using online social media to educate clients and to spur more referrals, thus increasing their web visibility and generating interest beyond personal recommendation.

"From an advisor's point of view, social media scores over one-on-one contact, in that the former costs less and offers better customization and effective delivery of information in a short time. Additionally, instant feedback from clients on an open platform ensures transparency," says Scott who also co-founded simplefinancialadvice.com to dispense financial advice to prospective clients using online social media.

Industry observers though are quick to assert that the time-honoured practice of advisor consultation cannot be substituted.

"Online social media is not a replacement for one-on-one consultation. Potential clients will always value personal attention over educational materials," says Vikram Rajan, founder of PracticeMarketingAdvisors.com, who serves as a marketing advisor for financial advisors.

"Everybody would rather consult an advisor they trust for his ethics and competence," he says. "The internet is a way to build and affirm that trust. Social media enhances it." He conceded social media is not a passing fad. All signs point to its staying power and that the service providers will follow the clients wherever they go.

The growing web of investment information on social networking sites such as Twitter, Facebook, LinkedIn, MySpace and blogs can help investors take charge of their investments. There are many incentives for advisors to consider going social.

Gaining a presence on these sites allows advisors an edge in securing new clients, enhancing communication with existing clients, and further promoting their services.

But many advisors cite compliance issues as a barrier, if not the barrier, to their adoption of the social networking phenomenon as a communication tool. Until the compliance departments catch up with the trend, delays due to the pre-approval requirements will defeat the purpose of participation.

Since it is early days for social networking in the financial industry many organizations are skeptical about the use of social media. Many financial services firms continue to prohibit the professional use of online social networking media by their advisors, even as others have started to embrace the technology.

(02/12/10)