As the market’s recent dips rankle investors, managing client anxieties is foremost among advisors’ many jobs, said several industry experts during a series of conversations at this week’s WealthManagement EDGE at the Beach Diplomat Resort in Hollywood, Fla.
During the discussions, firm c-suite executives detailed their greatest takeaways in helping investors remain steady during tumultuous market moments, like the current one.
“When you’re in these types of choppy markets, investors can be emotional about their portfolios and make poor decisions,” said Robert Pettman, executive vice president for wealth management solutions with LPL Financial. “This is the prime time and opportunity for advisors to do what they do best.”
TIFIN CEO Vinay Nair suggested that value-aligned investments could boost investors’ fortitude, highlighting a colleague’s research showing investors were 48% more likely not to sell a (slightly) ESG-tilted S&P 500 portfolio, as opposed to a standard one, during the 2008 market crisis.
“If you start linking values into their portfolios, you also help them stay the course,” Nair said. “It drives retention. We think of it as a ‘nice-to-have’ during good times and really value it during these times when the drawdown happens.”
The industry is in the midst of a “renaissance” of risk management, according to Heather Kelly, senior vice president and head of advisory and strategic accounts at Allianz Life. Risk management is all the more important as client demographics shift older. These investors are more likely to distribute (rather than accumulate) assets, which results in a different mindset for risk tolerance that advisors must keep in mind.
“Often, when clients are concerned … about running out of money and not having enough to sustain their lifestyles for their retirement, that’s when the emotional behavior starts surfacing, and clients will either run from risk or chase returns,” she said. “Neither is good for a long-term plan for a client.”
Too often, advisors can’t properly articulate that removing financial anxiety from clients’ lives is why they were hired in the first place, according to Joe Duran, head of personal financial management at Goldman Sachs. In a separate discussion on Tuesday, Duran said that those who can demonstrably reduce these anxieties “will have a job forever,” particularly in present conditions.
“Every plan that’s ever been written is inaccurate, because it has false precision,” he said. “We have no idea what inflation’s going to do or the market’s going to do, and heaven knows we don’t know if they’re going to get divorced or not, if their kid’s going to have a problem, if they’re going to win the lottery… Yet we’re uncomfortable telling clients ‘I have no idea, but I’m still worth it, because I’m going to help you manage uncertainty and simplify your life.'”
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