How social media is amplifying the market downturn like never before

Customers come to conversations extremely well-informed, compared to other downturns, says an advisor.CESAR OKADA/iStockPhoto / Getty Images

Are you a professional financial adviser? Register for Globe Advisor then subscribe to the new weekly newsletter on our newsletter subscription page. Get exclusive news and insights on the investing industry, top headlines of the week, and what you and your clients need to know.

The current market downturn isn’t the worst in recent history, but it’s one of the first to show up on social media, instantly notifying investors of every index drop, interest rate hike, interest and inflation data point.

Advisors say the amplification of social media has also kept these issues top of mind for customers and has begun to change the way customers interact with them.

Social networks play an important role in the lives of Canadians. In 2018, 90% of people aged 15 to 34, 80% of those aged 35 to 49 and 60% of those aged 50 to 64 used social media regularly, according to Statistics Canada.

But these platforms are still relatively new and have never been where people have gone to find market views.

Social media giants Facebook, whose parent company is now Meta Platforms Inc., Reddit and Twitter Inc. were founded in 2004, 2005 and 2006 respectively. TikTok, where finfluencers and personal finance content now proliferate, was launched in 2014 as an app primarily for lip-syncing videos before expanding into its current form.

“It’s hard not to have a headline on your phone talking about inflation, real estate and the markets,” says David O’Leary, founder and director of Kind Wealth in Toronto.

“I think that partly explains the focus on inflation rather than the fact that the markets are so down.”

Melissa Caschera, an investment advisor at BMO Nesbitt Burns Inc. in Windsor, Ont., says she’s been through several downturns with many of her long-time clients, but the current backdrop stands out for comparing it to the recession. of the early 1980s.

“I find a lot of people quoting things that happened in the 80s and how it’s the worst inflation since [then]stating what they know about the economy through social media,” she says.

Ms. Caschera notes that some clients have re-read Facebook posts to her.

“I just try not to give it any legs and try to direct clients to safe resources to get their information via… news clippings or email links from actual economists and strategists with something to say on the subject,” she said.

Paul Shelestowsky, senior wealth advisor at Meridian Credit Union in Niagara-on-the-Lake, Ont., says more and more clients are emailing him to share stories about market developments and get his notice, which it rarely experienced during the market downturns of 2020, 2015 and 2008.

“A lot of my clients are retired and they might not be on Facebook, but they’re online almost every day…and these headlines are everywhere,” he says. “The challenge is that 99% of headlines are catastrophic.”

Mr Shelestowsky says clients feel “tired” of seeing “red in the markets” week after week.

He thinks being inundated with headlines and publications made this downturn even worse for clients than the March 2020 stock market crash, which was a steeper decline but ended much faster. In some ways, it’s even worse than the devastating recession of 2008, which began to fade from their memories.

Social media has made customers “knowledgeable”

Darryl Brown, financial planner and founder of You&Yours Financial and director of portfolio strategies at Spring Planning Inc. in Toronto, believes that social media has actually made it easier for clients to be better informed about what’s going on in the market. His clients’ two main concerns are what rising inflation means for everyday life and its impact on their investment selection.

“I think it’s interesting how the social media landscape has really introduced those two things to people and provided them with a lot of investor education,” he says.

“They come to the conversations extremely knowledgeable, compared to other downturns.”

He says his clients aren’t in the far corners of social media, but noted that it can be difficult for investors to find the right kinds of voices and helpful information to think about their portfolio. He told clients to consider the work and backgrounds of social media personalities, and why they are active on those platforms before following.

Similarly, Mr O’Leary says social media has led to a “high level” awareness among clients of the global nature of inflation and the role geopolitical tensions with Russia play in volatility. current market.

“People are perhaps more aware that falling markets don’t necessarily have to do with their particular investment manager or Canada’s fiscal or monetary policy,” he says. “What happens in the market is driven by global factors more than local ones.”

How to cut noise

Advisors are taking different approaches to reducing social media noise and addressing client concerns.

Mr. Shelestowsky says that when clients are reviewing their financial and investment plans, he will show them their plans with a hypothetical lower rate of return or an expectation of 3% annual inflation to demonstrate that they are always on track to meet long-term financial goals.

“If we look at the long term, six months or even a year of negative returns shouldn’t derail this plan if it’s a good plan,” he says.

“I can tell them over and over again that things are going to get better and they’ll be fine, but when you can show them, specifically, for their situation and their plan, that’s where peace of mind comes in. Game.”

Ms. Caschera says conversations with customers have evolved as market information has become more prevalent. She makes sure to take advantage of the fact that their diversified portfolio will not behave exactly like the stock markets or major indices.

Mr Brown says he has dispelled inflation myths and made sure clients understand that while inflation is soaring right now, it won’t stay at these levels forever. He also talks about all the possible implications for their wallets, but noted that in the vast majority of cases there is no need to act.

Meanwhile, when Mr. O’Leary begins a relationship with a new client, he spends time explaining to him that markets can be unpredictable, that he should expect periods of significant decline – especially after a period excessively long upside – and that volatility is an integral part of the relationship between risk and reward.

He says those initial conversations have recently paid off.

“If you had these conversations and [then] market tanks and you talk to them again and remind them, it has a lot more credibility and weight,” he says.

“It’s not, in their minds, the impression you make up on the fly because things are bad and now you’re trying to appease them.”

To learn more about Globe Advisor, visit our home page.

Comments are closed.