Q&A: How Advisors Can Address Social Media-Inspired Investment Ideas From Clients

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Social-media-influenced investing has become so prevalent that both the Securities and Exchange Commission and Financial Industry Regulatory Authority released alerts warning about the risks in doing so earlier this year.

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Social media’s influence on investor perspectives places financial advisors in a new role as moderator. Advisors must find a way to mediate between their own responsibility to protect their clients’ financial interests and their clients’ fear of missing out on the next Reddit hot tip.

To gain insight into how advisors can walk this line without damaging their relationship with their clients, we spoke with Ted Wozniak, head of asset management distribution for SEI, a global provider of investment processing, investment management and investment operations solutions.

Wozniak shares his unique take on how advisors can allow clients to explore their options without putting their clients’ financial futures at risk. Here are edited excerpts from that interview.

How have financial advisors’ roles changed now that social media plays a more prominent role in investors’ lives?

Social media has made investing feel more accessible and less opaque.

The barrier to participate is a lot lower, meaning more people want to get involved. However, the downside to this is that it has increased the frequency of investment-related advice in social channels and has consequently brought “social proofing,” which is essentially the modern-day equivalent of keeping up with the Joneses.

What is great for one investor could be detrimental to another investor’s goals.

What do advisors say to clients who walk in with an investment idea they got off social media?

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It’s important for advisors to understand the why behind a requested portfolio adjustment, so that they can help their client make all their investments work toward their existing long-term financial goals.

Understanding a client’s motivation for exploring opportunities in, say, cryptocurrencies or meme stocks will help advisors make informed decisions about the potential opportunities for these types of assets in the client’s overall portfolio strategy.

How can advisors address clients’ social-media-inspired questions without putting their clients’ financial interests at risk?

An advisor’s role is to help their clients understand their risks. Right now, we’re seeing that fear and greed are no longer motivating clients to want to explore things like meme stocks or cryptocurrencies.

We’re seeing it’s more a fear of missing out. They’re seeing this wave of people online talking about investing in these assets and they don’t want to be on the outside looking in.

Should advisors dissuade their clients from paying attention to social-media-hyped investments? Is there a risk to doing so, perhaps potentially losing the client?

It’s so important that advisors are having proactive conversations with their clients about social-media-hyped assets before their client approaches them. This gives the advisors the opportunity to educate their clients on these types of investments. It also gives them the opportunity to discuss what that asset really is and what purpose it can serve (in a portfolio).

It’s not about dissuading their client from investing in these assets. It’s about being proactive and front-footed when addressing these types of questions.

And either way, advisors shouldn’t feel they need to dissuade their clients from having investment input. Not listening to and not understanding what is at the heart of a client’s request puts them at a far greater risk than indulging their curiosity.

How can advisors help their clients explore investments without putting their financial goals at risk?

The “explore” side of a client’s portfolio should always align with their goals. As long as the advisor is listening to their client and aligning their conversations to the client’s long-term investment objectives, riskier assets have less of a chance of negatively impacting the client’s financial goals.

The key to this process is open advisor-client communication.

If an advisor can take the time to educate their client and be sure to listen more than they speak, there’s an opportunity to grow portfolio share. However, the inverse is true as well: not listening can have dire consequences.

That’s why advisors should encourage their clients to explore but also ensure that they do so in a way that ladders back to their core investment goals and objectives.

Copyright 2021 U.S. News & World Report

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