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.
- Quality over quantity or frequency. Recognize that many clients may not want more communication, or more frequent communication or even face-to-face communication. They lead busy lives, too, and value succinct discussions that get to the core of the relationship—that you are there to provide financial advice. Whatever method you use to communicate with clients, make sure it conveys professionalism, market knowledge and empathy.
- Perspectives on social media. Explore you own attitudes about social media, and discuss these with clients. Do you assume that because you are not engaged in using Twitter or Facebook that your clients are not? Do they tell you they prefer emails or telephone calls or newsletters, or is it what you’re comfortable with? Try to find out how your clients like to receive communications, and gain competency in many forms to satisfy the full range of their preferences.
- What are you talking about? It’s simple to provide an account balance, list of holdings or breakdown of performance. The harder conversation may be to ask why a particular investment is in a portfolio and whether it should be. Always be transparent about the costs of your services, and encourage even long-time clients to ask questions about fees. Some surveys have shown that trust between the client and advisor is eroded most easily by lack of clarity on fees.
- Communicating with consistency. Make sure your support staff is well-trained and attuned to clients’ needs. Only about 15% to 20% of a client’s contact is with their advisor. The rest falls to the assistant or a staff member. The entire team needs training in dealing with client concerns and should be able and empowered to solve problems while dealing with the client.
Advisors need to continually ask themselves whether, when the conversation is over, they communicated effectively with clients. It doesn’t have to be elegant, time-consuming or technological. But it should be intelligent, personal and sincere, demonstrating that the client matters to the advisor, and that the strength of the interaction is just as important as investment success.