As the events of the last 18 months have brought home to many advisors, the world has changed in ways few could have imagined in 2000. But long before September 11, many Americans sensed that their collective concept of risk was undergoing a profound change, even if they couldn't pinpoint it precisely.
Today, that changing perception has become crystal clear to observers like Jeff Shaffer, a partner at Yankelovich Partners in Norwalk, Conn., who addressed the subject at a Fidelity Institutional Brokerage Group conference in Dallas in late April and in subsequent interviews. "Risk is the enduring psychological impact of 9/11," Shaffer says. "In the 1990s, the only risk was not taking a risk. The new notion of risk is controlling the downside."
Terrorism is only part of the equation. "People aren't fully convinced the worst is over," Shaffer explains. Whether it's the stock market, corporate layoffs or rising global tensions in a variety of theatres, many Americans think things could get worse before they get better.
Only two years ago, it seemed like paradise was just around the corner. The end of the Cold War had ushered in a new era of global peace, the sharp peaks and troughs had been taken out of the business cycle, and the human genome project was supposed to end disease as we knew it.
If the national psyche was pervaded by a confluence of phenomena that all pointed to nirvana, people weren't living that far up in the stratosphere. In a Yankelovich survey conducted in June 2000, 80% of those interviewed said they thought a downturn was likely in the next few years. Though the recession of 2001 has been one of the mildest in recent memory, the high-tech hangover and the psychological impact of terrorism have overshadowed the remarkable resiliency of the economy.
Shaffer notes that while only a handful of upper-income individuals got truly rich in the 1990s, the affluent attitude moved into the mainstream of American life. Put another way, the "tools of empowerment" traditionally enjoyed by only the affluent became much more accessible. "The notion of control over their lives, lifestyles and choices in the marketplace" became commonplace. Ordinary Americans "embraced this outlook on life," Shaffer says.
Many people suddenly were confronted with more employment options, and not just from bogus dotcoms. More companies let employees work flextime from home and take off an afternoon every week to coach Little League. Expectations about customer service soared, and everyone expected to be treated like someone special.
These attitudes remain a part of post-millennium society even as they clash with the changing notion of risk. "We still have choices, but the feeling of control and certainty has fallen," Shaffer says.
Like all Americans, the affluent share in the new sense of vulnerability. "We keep waiting for something to happen to validate our fears and concerns," Shaffer says.
One day this past spring, two manhole covers popped open in New York City. It's something that happens about 50 times a year in Manhattan and rarely rates more than a mention on the local news. This time, the story burst onto all the chattering cable channels and was quickly followed by a swoon in stock prices. Good economic news that once was guaranteed to produce a rally in the financial market now fails to elicit a positive response or, on some occasions, any response at all.
More than anything, September 11 reminded people that life is short. Consequently, Shaffer notes, that day's events accelerated Americans' desire to reprioritize their lives, an urge that had been gathering momentum before that pivotal moment in our history.
For attendees at the Fidelity conference, Shaffer identified these trends emerging from those watershed events:
1. Less faith in the power of the individual, translating into more government intervention.
2. Concerns about safety and risk avoidance, creating increased interest in low-risk financial products.
3. A desire not to attract attention, resulting in inconspicuous consumption.
4. A broader feeling of unity and connection, spawning a desire to help fellow citizens.
While a positive legacy of September 11 was that it revealed the best side of the American character-on the surface-the attitudinal shifts hardly are encouraging for global capitalism's most important engine. The ongoing stories of greed and misdeeds in corporate America, from Enron to Tyco to Qwest Communications, are prompting even the most ardent advocates of free enterprise to recoil at the naked greed displayed by many individuals.
More and more, it seems like the late-1990s corporate profit boom was partly a mirage magnified by creative accounting. But one shouldn't view the whole era like some kind of Mardi Gras bender. Some of its positive outcomes, like the productivity miracle, are still with us.
Nonetheless, Shaffer contends that many of the things Americans want now are things that they didn't get much of in the 1990s. Like time with their families. More time for leisure in general. A slower pace of life. Meaningful, emotionally rewarding connections. Help in choosing how to spend their time and energy. And, yes, actual affluence, as opposed to the illusion of affluence.
It would appear that this new environment should prove a lot more hospitable to independent financial advisors than the manic high-tech bubble atmosphere of the late 1990s, when consumers felt empowered and everyone suddenly had access to vast quantities of information. An event like September 11 may not really have made individuals better people, but it exerted a powerful influence on their priorities.
Americans now appreciate their families more than they did only a few years ago, according to research cited by Shaffer. Between 1999 and 2001, the proportion of people who said they derived "a great deal of satisfaction" from their children climbed from 57% to 67%. Those receiving great satisfaction from their "primary personal relationship" rose from 27% to 42%, and those getting high satisfaction levels from their relationship with their parents increased from 22% to 31%.
These shifting priorities can play into the hands of financial advisors who understand them. Shaffer suggests that advisors might explore providing financial accounts based on relationships, such as grandparents and grandchildren and parents and teens. On a more practical level, he notes that "living well with less" is suddenly becoming a new measure of status, so convincing clients to curb their spending is likely to be an easier task than it was in the roaring '90s, when client portfolios were rising 10% a month.
The vaporization of trillions in equity no doubt means that many Americans will be working longer than they thought in 1999. But Shaffer told attendees at the Fidelity conference also to anticipate growth in voluntary career interruptions such as Daddy-leaves, sabbaticals and on-again, off-again retirements. Fully 59% of baby boomers will continue working at least part-time long after they reach retirement age, resulting in intermittent cash flows, he says, and many of them will need professional help in managing their nontraditional lifestyles and cash flows.
When it comes to investing, Shaffer notes Americans are sobering up and still hurting from an extended high-tech hangover. Investors who once traded online until their fingers ached now view day trading with deep suspicion. When Yankelovich asked Americans if they believed that "trading stocks on the Internet will end up hurting more people financially than it will benefit," 50% said it would. When broken down by age group, 45% of Generation Xers, 52% of baby boomers and 56% of what Yankelovich calls matures all agreed.
Ultimately, the do-it-yourself investor, thought to be in the ascendancy a decade ago, is giving way to what Shaffer calls empowered delegators. While they are willing to hire professionals for financial issues, they still want involvement in an advisor's decision-making process. Shaffer uses the general contractor model as an example of the type of relationship they are seeking.
It may be a byproduct of the extended bear market, but Americans' level of trust in the financial services profession isn't particularly high these days. When asked what professionals they have a great deal of confidence in, only 22% of respondents in the Yankelovich survey indicated they felt deep trust about financial planners and bankers, ranking them just below lawyers, who merited a 26% affirmative response. Still, planners and bankers easily beat stockbrokers, who received a high-confidence rating from a meager 11% of respondents.
As the results indicate, the opportunities facing advisors are unprecedented, but so are the challenges.