Media war: Time to bunker down and shore up your credibility (Part 1 of 2)

(May 2003) Too many professional financial advisors appear to be pinned down in the trenches in a gathering media war sparked by disappointed consumer expectations. The rumble of artillery aimed at the advisory community is just starting in Canada’s news media. Many financial advisors may feel like they’ve already been bombed, when they’ve really only suffered collateral damage from assaults on other targets.

However, the critics of financial services industry accountability are starting to find the range on financial advisors. A lot of investors have lost a lot of money and now want to know why. All the possibilities will be considered by the news media.

Investment publications and hardcore business newspapers have carried articles about commissions, fees and sales practices for some years, but most members of the general public pay scant attention to these publications. They are too technical.

Change underfoot

The clearest sign that something has changed in the news media is when you can actually find the views of former Ontario Securities Commission member and investor rights advocate Glorianne Stromberg featured in jazzy tabloid newspapers.

Stromberg has even taken to writing guest columns for mainstream newspapers like the Toronto Star in an apparent move to raise consumer awareness around the kitchen tables of the country. She offered the opinion that recently changed rules governing reporting and investor rights of withdrawal “raise fundamental questions as to the ability of individual investors to play a meaningful role in protecting themselves.”

One might ask: Protecting investors from whom?

The Star, Canada’s largest circulation newspaper, reaches a large number of middle-class Canadians investing mostly for retirement through RRSPs. In addition to Stromberg’s calls for greater accountability to investors, columnists like David Cruise and Alison Griffiths, who write the Star‘s “Portfolio Doctor” column, are writing articles with headlines like: “Advisors need to clean up their pond.”

Accountability goes mainstream

While many financial advisors may yearn to build their businesses around investment-savvy “high net worth” clients, the lion’s share of the enormous RRSP business comes from people of more modest means and account sizes.

The debate about accountability to investors has gone mainstream and these audiences may be less receptive to financial advisors’ nuanced arguments surrounding compensation, performance and accountability, especially if they feel they turned to a professional to manage their downside.

Don’t hold your breath for good news

Financial advisors attentive to the news media may wonder when some good news about the industry — even some of the good news that exists — will get some journalistic attention.

The answer: It could take a while. Here are some reasons why:

First, Wall Street’s recent billion-dollar act of atonement only confirms public suspicions about the value of professional financial advice.

Second, some high profile media personalities have been subject to intense regulatory scrutiny. In addition, federal broadcast regulators are looking into the relationship between sponsorships and investing programs on television. Professional journalists will take care to demonstrate their objectivity and less professional ones will be lightning rods for negative publicity.

Third, a simple reality of the news business may be of indirect influence. Editors have a tendency to rank news sequentially in order of importance and breadth of impact on the public. Imagine this scenario: An editor has 20 stories to consider for the limited space in a newspaper. The first 10 stories include tales of market volatility, salacious malfeasance and global insecurity. The next 10 stories are about more ordinary examples of business success or unproven but potentially attractive new investment ideas and strategies. At the same time, the battered financial services industry drastically cuts its advertising spending, reducing the “news hole” available for articles.

The outcome is obvious: With a few exceptions, newly skeptical editors alert readers to the most important threats facing them, and run out of space to print much else because the investing sections of most daily newspapers have contracted noticeably, even dramatically. Advertising more than editorial judgment sets the size of newspapers.

Will this spell trouble for your practice? The answer is, “Yes.” But just how much trouble depends on your own efforts to demonstrate your accountability to your clients and the steps you take to shore up and capitalize on your own credibility.

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Be sure to check back to Advisor.ca’s Practice Zone in a couple of weeks for the second part of this two-part series, where Ken Whitehurst explains how financial advisors must re-earn the role of being their clients’ trusted, important source of insight for making investing decisions.

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Ken Whitehurst is a writer, editor and private communications analyst. He was formerly publisher and editor of the Global Stratagems information services for professional financial advisors and a senior executive with Global Strategy Financial Inc. Ken can be reached at kenw@aci.on.ca.

(05/28/03)