One of the most critical and sensitive functions of investment advisors is how and what to communicate to clients. Clients indeed want information—on portfolio performance, potential investments, fees, market activity—but may value the quality of advisor contact as much as the length or quantity. Despite all the attention focused on the industry use of social media, clients may benefit more from an advisor who is knowledgeable and trustworthy than one who has mastered tweeting or prospecting on Facebook.
The most recent Rydex|SGI AdvisorBenchmarking survey revealed the importance of the personal approaches to providing investment advice. Advisors reported they were spending more time directly with clients, whether face to face or over the phone. Phone call use, for example, has nearly doubled from 51% to 96% in the past two years, while in-person meetings have increased from 59% to 93%. Less-personal methods showed erosion—newsletter use, for instance, dropped to 50% in 2011, from 74% in 2010 and 62% in 2009.
This trend toward greater interaction picked up after the 2009 market crisis and subsequent recession, as advisors learned clients wanted more “high-touch” communication when markets were in turmoil. Advisors spending the most time with their clients are often in a better position to demonstrate their investment knowledge and convey their value, which may help strengthen relationships, increase referrals and boost assets.
To clients, the nature and style of communication may matter as much as the management of money. A 2006 study by SSgA and The Wharton School on “Bridging the Trust Divide” found that clients are more comfortable and more prone to continue a relationship with an advisor who can integrate the financial and personal dimension into a practice—who can understand and address a client’s financial situation and attitude toward money, and do so with insight and discretion.
That is not to say that advisors and their clients ignore “high-tech” communication. About 47% of AdvisorBenchmarking respondents said they either use or plan to use social media in coming months. The main reason they give for not using social media is not its impersonal nature but their uncertainty over navigating compliance issues (47%) and inability to measure effectiveness (27%). It doesn’t help that regulatory guidance has significantly lagged use of the tools, leaving rules on advertising under the Investment Advisers Act of 1940 to govern behavior (such as keeping adequate records, avoiding testimonials and preventing fraudulent, deceptive or manipulative acts). Advisors may also find it difficult to quantify how much and in what ways social media helps the client-acquisition process. What they do know is that it takes time. Lacking staff to manage and maintain a social media presence registered the largest increase among reasons RIAs do not use social media.