Financial advisors will need to innovate and reassess their clients’ investment goals in light of a severe drop in investor optimism amid the coronavirus pandemic, according to a recent report.
The market volatility that accompanied the Covid-19 crisis has “shattered investors’ optimism in the economy,” Cerulli says. Net economic optimism among investors plunged 90 points between February and March 2020, and optimism in March was at its lowest among investors in advisor-directed relationships, according to its most recent report on retail investor sentiment.
Advisors will need to reassure clients that markets will eventually return to normal levels in the long run, particularly amid “near unprecedented levels of uncertainty,” Cerulli says. Advisors should also focus on reinforcing their clients’ financial goals and objectives, while at the same time adjusting their clients’ portfolios to buffer against volatility, according to the report.
In addition, investors’ risk appetite may be altered fundamentally as a result of the current market situation, Cerulli says. Advisors need to focus on both reassuring clients that their long-term portfolios are built with the expectation of such turbulence and to assess whether the clients’ risk appetite has changed, according to the report.
Fortunately, households are mostly interested in holding steady with their portfolios, while the risk of panic selling on the bottom appears to be low, which Cerulli says should “hearten” advisors. On the other hand, “this does mean that the money that was added during the good times should be prudently cared for so that it optimally serves clients’ long-term goals,” Cerulli’s lead investor practice analyst John McKenna says in a statement.
Advisors should focus on long-term planning for younger clients and be prepared to have discussions with older clients earlier than planned about more conservative investments, according to the report.
Finally, advisors need to take into account that during a time of social distancing, clients in advisor-directed relationships are likely to seek alternatives to monitoring their finances, Cerulli says. Therefore, incorporating digital tools into advice, which has become expected, is even more critical now that advisors can’t have face-to-face meetings with clients, according to the report.
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