As the country continues to grapple with Covid-19, one thing is clear: the impact of the pandemic is far from over, and Americans are growing more concerned in an uncertain world.
While the jobs reports for June and July were positive, the rate of growth is slowing and the labor market remains almost 13 million workers shy of its February peak. The U.S. economy contracted 5% in the first quarter and declined a record 32.9% in the second quarter. Yet, equity markets have been remarkably resilient this year, and most major indexes finished July in positive territory. But stocks have continued to waver, as an increased number of coronavirus cases have been reported in new hot spots, such as Florida, Texas and other southern states, and could stall in the second half of the year if the governmental response to the pandemic negatively impacts the economy.
According to Nationwide Retirement Institute’s (NRI) April survey, 85% of investors, with assets of $100,000 or more, felt that even if they do all the right things to manage their finances and investments, they can still be blindsided by outside events. The emotional, physical and financial impact of a wide-reaching event like this pandemic can have long lasting effects, as decisions made today can impact clients’ future plans—particularly their retirement.
Being able to retire as planned is one of investors’ top concerns during the pandemic. Here are four tips to help your clients stay the course and keep their retirement on track through uncertainty:
Tip 1: Focus On The Long Term
When clients face the unknown, the first step to helping them stay on track is to develop a holistic plan that is focused on the long term. Help clients understand how all the components of a holistic financial plan can help them meet different goals across the stages of their financial lifecycle—from accumulation, to retirement income, to legacy planning. Diversify across asset classes to help manage market risk. Focus on tax-diversification through the right balance of taxable, tax-deferred and tax-free investments and accounts, for greater accumulation potential and for more flexibility when generating retirement income.
Even with a long-term holistic plan and a well-diversified portfolio, it’s not always easy for clients to stay calm and stay the course, when the economy, the markets—and their account values—are increasingly uncertain. As our recent NRI survey showed, only 42% of investors said they will stay the course and make no changes to their investment portfolios in response to the Covid-19 pandemic, while only 50% said they would stay the course and make no changes to their qualified plans such as their 401(k), 403(b) and 457. To help cover expenses related to the pandemic, 16% of investors said they would sell shares from their investment portfolios and 16% also said they would sell shares from their qualified plans.
Make sure clients understand the impact of making short-term moves. By selling shares in order to meet current financial obligations or taking money out of the stock market altogether, clients run the risk of locking in losses, and missing opportunities for future growth.
More importantly, remind them that time is on their side. Timing the market has proven nearly impossible, and staying invested in the market, even through times of volatility, has shown historically to produce the best long-term results. For example, even in the six months after the Swine Flu outbreak in 2009, global markets pulled through and increased by 40%. Similarly, six months after the SARS outbreak in 2003, markets increased by 23%. Even following the Crash of 2008, markets recovered in four and a half years.
Tip 2: Protect Portfolios And Retirement Income
Right now, the only thing certain is uncertainty. Diversification and a long-term strategy can help younger clients ride out the rough patches, buy when markets are low and take advantage of decades of compounded growth, to be better prepared when they reach retirement years. But for older clients, who are nearing or in retirement, the challenge can be more complex. They have fewer years to accumulate or may already be making withdrawals from their portfolio. Be sure to listen to their concerns.
As the pandemic has created greater uncertainty, investors have recognized the need for solutions that offer downside protection for their portfolios and provide guaranteed income—beyond the traditional means of Social Security and pensions. Following record drops in the market and extreme volatility, our NRI survey shows that more than half of investors (51%) said Covid-19 made them recognize the need for annuities to protect their investments against market risk. More than half of investors (51%) also said the pandemic made them recognize the need for annuities to protect their retirement income.
When building holistic plans, the right kind of annuities can be a core component. They can be a tool to mitigate market risk and offer guaranteed income in retirement, to help increase clients’ confidence, ease their fears and stay on track. Annuities can supplement other sources of retirement income such as Social Security, or help bridge an income gap before Social Security starts. And with a floor of guaranteed income in one portion of their portfolio, your clients can invest another portion of their portfolio more aggressively, for greater growth potential, to fund a retirement that can last two to three decades—or more.
Tip 3: Create Empathy By Acknowledging Client Concerns
Advisors and financial professionals top the list of trusted sources during the Covid-19 pandemic. In fact, 55% of investors say advisors and financial professionals are their number-one source for guidance during these uncertain times. But trust is hard to earn and easy to lose. So, what can you do to ensure that you build and maintain this trusted relationship?
To understand what drives clients to work with an advisor or financial professional, Nationwide studied the impact of cognitive trust, or “trust from the head,” and affective trust, or “emotional trust.” Our research shows that affective trust is a far greater predictor of what motivates an investor to work with an advisor or financial professional than cognitive trust. And the most significant driver of affective trust is empathy.
Trust and empathy are especially important right now. As a result of Covid-19, more than half of investors realize they need help managing their finances (52%), and their top three financial concerns related to the pandemic are losing their life's savings (41%), being unable to afford health care (28%) or afford to retire as planned (28%), according to our NRI survey.
How does this compare to your clients’ top concerns? When you build trust and show empathy, you can keep clients on track with their finances and develop strong, mutually beneficial relationships. Ask questions to better understand:
• How has the coronavirus impacted you? Your family? Your employment? Your finances?
• In this new normal, what are your top concerns, your financial priorities and your short-term financial goals?
• Are you concerned about the pandemic’s impact on your long-term financial goals?
• How has your comfort level with risk changed, as a result of the pandemic?
Tip 4: Harness Technology To Help Build The Human Connection
Technology is a critical, and beneficial, component of your practice—especially as the pandemic has required many of us to work remotely and change the way we interact. According to a new LIMRA Study, as Covid-19 cases spiked and social distancing guidelines were adapted, seven in 10 advisors increased their communications with their clients.
Building relationships with your clients is more important than ever in this new normal. According to the LIMRA study, nearly two-thirds of advisors and financial professionals are now working from home. Not being able to meet in person with their clients ranks as the biggest impact during the pandemic for nine in 10 advisors. By fostering one-on-one relationships through virtual meetings—such as FaceTime, Skype or Zoom—advisors and financial professional have maintained more personalized interactions similar to in-person meetings and have created stronger bonds than those who only engaged in phone calls.
It remains important that you enhance the customer experience for your clients. According to our most recent Advisor Authority study, the most important technology to add value for your clients includes interactive websites and/or client portals, mobile websites and/or mobile apps, tax optimization tools and account aggregation systems. This is extremely valuable, especially during these times of social distancing, as more clients look for digitized communication on a day-to-day basis.
Don’t Delay: Put These Tips Into Practice Today
Though we all face many more unanswered questions right now, you and your clients can succeed during this uncertain time. Clients need—and want—your help. According to our NRI survey, roughly half of investors are relying on an advisor of financial professional more than ever before. And when it comes to the impact of Covid-19 on their personal finances, those with an advisor are more likely to feel optimistic than those without.
Now more than ever, it is crucial to protect clients from emotional reactions when it comes to their retirement plans. Keep clients focused on the long term, build holistic financial plans, including the right solutions to protect their portfolios and retirement income, build empathy by acknowledging their concerns and use technology to foster and deepen your relationships. While Covid-19 has challenged clients in unforeseen ways, there are solutions to help your clients preparing for and living in retirement. Taking steps today will benefit your clients and your practice now and in the future.
Craig Hawley is head of Nationwide’s Annuity Distribution.