Personal Finance

Op-Ed: Advisors Must Meet the Digital Demands of Young Investors

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  • Millennial and Gen Z consumers are showing a willingness to engage in investing, and they're sharing a lot of advice and experiences on social media platforms.
  • Financial advisors can attract younger clients by engaging them in the digital sphere while continuing to offer the high-quality, personalized service interactions robo-advisors can't match.
  • An advisor's environmental, social and corporate governance investing prowess can help attract and secure young clients.

More than ever, young investors are engaging with the stock market.

An E-Trade study found that 51% of millennial and Gen Z investors reported their risk tolerance had increased since the pandemic — 23 percentage points higher than the total population.

The study also found that they are taking cash off the sidelines. More than 1 in 3 investors (34%) under the age of 34 said they are moving out of cash and into new positions, 15 percentage points higher than the total population.

Additionally, as many as half of retail investors in the 25-to-35 age bracket plan to direct 50% of their stimulus checks to the stock market, according to a new study from Deutsche Bank.

I've witnessed this behavior firsthand: My millennial daughter has embraced investing, even allocating part of her portfolio for her own stock picks.

To select these investments, she relies on her friends, her own research and social networks — both online and offline. Of course, heeding advice from friends is nothing new, but today the prevalence and accessibility of crowdsourced advice on trading platforms or online communities can be empowering.

The days when money was a taboo topic of conversation are gone. Instead, sharing everything from student debt to personal salary information is fair game — not just with friends and family, but with audiences over social platforms.

Growing up in the age of social media, millennials and Gen Z discuss even their most personal information and experiences online. Social media offers a space for connection. Like my daughter, newer and often younger investors are likely to tap into their networks for advice and validation.

Yet acting upon financial advice seen on social media platforms can carry outsized risk and result in high-stakes consequences. It wasn't long ago that individual traders on Reddit drove an astronomical increase in the value of GameStop stock, creating a market valuation swing of more than $30 billion for the company.

The drama underscored that the social aspect of modern finances is a big deal. These investors don't want to go it alone on their investment journey. That's why savvy financial advisors can step up to fulfill this need by meeting young investors on the channels and at the moments that matter most for them.

The bottom line: Financial advisors must meet the digital demands of young investors.

The pandemic kicked open the door for remote relationship building, as client meetings happened over video-based services like Zoom.

Advisors started texting clients, en masse and one-on-one, to help lessen fears and quell uncertainty during periods of market instability. And while advisors grew increasingly active on social channels over the past few years, this level rose dramatically in 2020. 

Young investors expect to interact and learn digitally, so financial advisory firms that not only adapt — but up their game and sustain new practices — will be best suited to win the business.

Instead of that in-person investing seminar from pre-pandemic days, advisors might do a real-time Q&A on Facebook Live from their company or advisor page. Those advisors who already work with children of existing boomer clients could shoot a quick "Three Ways to Start Investing" Instagram Reel that speaks to his/her experience.

Ultimately, while a robo-advisor may help cultivate good savings habits and familiarity with investing, a trusted financial advisor will still be best equipped to provide authentic, tailored services to the young investor. And that becomes even more important as life gets more complicated and financial situations become layered with an emotional component.

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Building a strong digital presence and fostering rich social interaction isn't about taking what you've always done and moving it online. Instead, investigate the platforms and mediums you want to use; consider their strengths and weaknesses, and contemplate what you hope to accomplish.

Ask yourself: What do Instagram and Facebook offer, for example, that text or Zoom doesn't? Where does LinkedIn fit? How do you want to use Twitter?

As you map out a digital strategy for successful communications, here are some points to consider:

  • Meet clients where they are: The omnichannel consumer is here to stay, and modern advisors must engage with them when and where they want, on the channels they prefer. A boring online listing won't attract young, digital savvy investors. In fact, it may send them running in the other direction. A cohesive digital identity that spans platforms can go a long way, demonstrating that you speak their language. Paramount to staying connected? Maintaining an authentic, human-first touch in ways that meet the demands and expectations of real people throughout the customer journey.
  • Show your worth: As a trained professional who understands the intricacies of the market in ways that most young investors don't, you can calm panic, respond to market changes and offer trusted, personalized advice in ways that robo-advisors are unable to do. Leverage the tools in your arsenal to educate and show that you have your investors' best interests at heart.
  • Use ESG to your advantage: Younger generations care about values. An advisor's environmental, social and corporate governance investing prowess can help attract and secure young clients who want to support companies they believe will generate solid returns. Using social media to highlight issues investors are passionate about and the high-performing companies working in these spaces could go a long way. In our post-pandemic world, advisors who stand alongside customers to embody brand values that go beyond corporate, and embrace a better society, world and future, will naturally deepen their client connections.
  • Be compliant: All the items on this list don't mean anything if you don't nail the compliance piece. The Financial Industry Regulatory Authority and Securities and Exchange Commission want to ensure that digital practices are appropriate, fair and in retail investors' best interest, and are therefore fully auditable and adhere to security and privacy regulations. This is a tall order, but tools are available to make digital communications function seamlessly while remaining fully compliant with regulations. Talk with your corporate team to learn about your options and make a plan.

Advisors are poised to take a real step forward in reaching young, digitally savvy investors.

Modern financial advisors now can offer the best of all worlds by delivering expert, highly relevant and compliant content while facilitating meaningful digital interactions and cultivating a community of young investors.

The question is, who is ready and willing to take the plunge?

 — By Mike Boese, CEO of Hearsay Systems

Copyright CNBC
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