Financial Blog Corliss Group

Social media and financial advice aren’t such an easy match after all.

Sure, the initial attraction is obvious. With one stroke, advisers can woo clients with regular investment tips on Facebook and Twitter, building an audience and drumming up business. Then, after establishing a rapport with their followers, they can follow up with one-on-one video conferencing to clients on Skype or FaceTime without leaving their screens.

But back up a minute.

Old-fashioned, face-to-face communication is still key, advisers say, even for those who use social media extensively. In-person meetings are a must to glean nuances about risk tolerance and financial needs that clients may not even realize about themselves, let alone be able to communicate. Worse, pat advice on Facebook and Twitter can run the risk of looking like a hot tip and other worthless advice littering some investment websites.

So, how best to proceed on social media? Here are some things to consider:

1. Set the right tone

Being on social media is about “being where the people are. It’s about being engaged, sincere, genuine and contributing something of value. And over time, you build relationships,” said Will Britton, a financial adviser in Kingston.

For him, social media is a place to begin a conversation. For instance, he hopes to open dialogues with his regular roundup of stories from financial media, acting as a mini news service for people following him on Twitter. By linking to these stories and affixing his Twitter tag, he’s effectively handing out electronic business cards to the world.

“My presence [on social media] is enough for people to know what I do professionally. There’s certainly some professional content, whether it’s sharing links to worthwhile articles or videos or stuff that I come across.”

It’s a faux pas, though, to look like someone selling something, he said.

“I try to stay away from overt marketing, A) because we get into compliance issues from an industry point of view, and B) I just don’t think that that’s what the people on those platforms want anyway. They’re looking for connections and conversations and engagement. They’re not looking for spam and ads and ‘Come buy this from me,’” he said.

1. Differentiate between public and private

Investment professionals need to draw a clear line between public and private, a line that’s not always clear in social media, nor in real life.

Take this easy scenario: a conversation at a children’s hockey game. In the stands, parents inevitably get to talking. Often the topic will turn to money and, sooner or later, an investment pro such as Mr. Britton will have to mention that he’s a financial adviser.

That’s when another parent may get serious and ask a direct question about the family’s finances. That’s when the informal conversation needs to stop and continue in private. It’s best to think of social media as a giant referral service for investment advisers, he said.

“I think a lot of the time, people definitely aren’t going to the Yellow Pages [to find advisers], and I don’t even know if they’re going to Google any more,” he said. “They are crowdsourcing that information. They’re going to their community, wherever it is, whether it’s online or off, and saying, ‘Hey, does anyone know a good financial planner?’”

1. Social media still isn’t seen as a replacement for traditional financial news sources

There’s skepticism surrounding social media as an information source in the investment community.

Institutional investors remain particularly wary, according to a global poll by communications network AMO conducted in January this year. Their survey of 105 institutional investors in 12 countries found that 85 per cent feel that social media sites are generally not reliable for financial news.

Yet, at the same time, they also indicate a future for it, with 82 per cent saying that social media is growing in importance in financial communications. Thirty-nine per cent of these are prone to looking at investment forums for work regularly or occasionally, and 28 per cent consult them under exceptional circumstances. LinkedIn was the most popular of the social media sites, with 59 per cent consulting it at some point, although a large 41-per-cent segment reported never using it professionally. About 46 per cent reported ever consulting Twitter professionally.

Similarly for retail investors, an online survey in August of 2013 for BMO InvestorLine found that social media platforms, such as LinkedIn and Facebook, were still slow to be seen as reliable investment-news vehicles. Only a third of the 1,020 Canadian investors surveyed said they use social media for investment insights.

In comparison, 69 per cent of those investors surveyed said they found TV current events and business news trustworthy, and 55 per cent said the same for newspapers and magazines. So linking to more traditional news sources may still be a good habit for advisers online, rather than linking to blogs, forums or other social media.

All of this suggests that social media continues to make inroads, but it still has a way to go.

1. Organize online advising more effectively

Victor Godinho, a financial planner in Toronto and still in his early twenties, sees social media as perfectly suited to the 20- to 40-year-old crowd he caters to. Every Friday, he posts a financial tip on his social media sites, from Instagram and Facebook to Twitter and Pinterest. He has a client in Ottawa with whom he conferences on Skype.

Yet he adds that Skype and social media require a more effective use of time, rather than just chatting for an hour in his office. “You need to keep their attention [online], or you need to make sure they’re on the same page as you, considering you’re in two different locations.”

It’s a supplement to in-person meetings. “Every year when we do our annual review, we’ll meet in person,” he said, and “when you’re in-person, you’re inclined to talk more than just business.”

But for a video conference, advisers need to send clients documents ahead of time. Time onscreen needs to be managed more efficiently, and the meeting needs to move along at a faster speed. More pre-planning is required to make the meeting more effective. It requires a different communication skill, with a focus on not wasting time.

“If you can make that easier on your client, that’s the best thing you can do,” Mr. Godinho said.

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The World Bank's most recent Global Economic Prospects (GEP) report, released this week, says a global economic recovery is underway, underpinned by strengthening output and demand in high-income countries.

Global GDP growth in 2014 will be 2.8 percent and it is expected to rise to about 4.2 percent by 2016, according to the report, which the World Bank publishes twice a year.

Average GDP growth in developing countries has reached 4.8 percent in 2014, faster than in high-income countries but slower than in the boom period before the global financial and economic crisis of 2008.

Demand side stimulus or supply side reforms?

The global economic slowdown that struck in 2008 was caused by a financial crisis that resulted in large part from the bursting of an enormous, fraud-ridden mortgage lending bubble in the US.

The crisis led to varying responses in different countries. The GEP report's authors said that in general, developing countries privileged demand stimulus policies over structural reforms during the past several years.

For example, in 2008 to 2009, China implemented a four trillion-renminbi ($586 billion) stimulus program as a direct response to the slowdown in global trade caused by the global financial crisis.

Critics pointed to over-investment in China as a risk to continued fast growth. The country is now struggling to contain a real estate bubble of its own.

The World Bank wants China and other emerging countries to refocus on structural reforms.

"A gradual tightening of fiscal policy and structural reforms are desirable to restore fiscal space depleted by the 2008 financial crisis," the bank's chief economist, Kaushik Basu, has said. "In brief, now is the time to prepare for the next crisis."

The World Bank's mantra: Fiscal discipline and structural reforms

Yet the World Bank is well known for nearly always prescribing fiscal "tightening" - or cutbacks to government expenditures - and "structural reforms."

What is the rationale for public expenditure cutbacks? And what does the World Bank mean by "structural reforms?"

The World Bank consistently urges policymakers to prevent annual deficits from growing faster than the rate of GDP growth. Rising debt-to-GDP ratios mean that an increasing share of the public budget is devoted to servicing debt, leaving proportionately less money available to pay for government-provided infrastructure and services.

However, sometimes countries fall into recession when households, in aggregate, attempt to pay back previously incurred debt faster than they take up new debt. In the jargon of economists, this is called "deleveraging."

For example, Spanish households have been attempting to "deleverage" on a net basis since the collapse of the country's real estate bubble in 2008.

Ray Dalio, founder and CEO of Bridgewater Associates, the world's largest hedge fund, says there are good ways and bad ways to achieve deleveraging. He calls these "beautiful deleveraging" and "ugly deleveraging."

Dalio explains that deleveraging reduces the circulating money supply and leaves less money available to buy products and services.

Under those circumstances, he says, governments sometimes have to step in to supply missing demand. They do this by raising and spending a great deal of money to make up for cutbacks in household spending and business investment. The aim is to prevent a self-reinforcing recessionary spiral from taking hold.

There are three ways to raise the necessary money: borrowing (generally from large savings pools, such as pension or insurance funds), raising taxes on the relatively wealthy, or getting the central bank to print money.