In a historic pandemic, with some of the highest market volatility of the past 20 years, our industry faces unique challenges. The shared wisdom and experience of our peers can provide valuable insights into how we can weather the storm together and continue to protect and build our businesses.
Our recent E*TRADE Advisor Sentiment survey gave RIAs the chance to share their priorities, concerns and observations as the U.S. enacts extraordinary measures in response to the coronavirus pandemic.
Market Volatility Is Top Of Mind
With the coronavirus pandemic affecting every corner of the market, our data shows RIAs are well aware of the critical role they play as volatility risk managers: 85% say managing volatility risk is their number one priority, followed by mitigating against recession (55%), and interest rate risk (49%).1
Advisors are working diligently to protect client goals and assets, while also serving a more subtle, emotional support role. The top two reasons clients are currently contacting their RIAs are market volatility (53%) and coronavirus fears (37%).1
In these unchartered waters, clients continue to look to advisors not only for financial expertise, but also reassurance and behavioral guidance.
Advisors In The Time Of Coronavirus
While prioritizing volatility risk management, our peers are doubling down on their targeted response to the pandemic:
The optimistic outlook: The resilient spirit of the RIA is evident, as three out of four still expect AUM growth between 6–15% (76%).1
The downturn strategy: More than one in three advisors are looking for buying opportunities in undervalued names (36%). RIAs have flagged fixed-income exposure (13%) and dividend-paying securities (13%) as their top strategies, with others considering portfolio rebalancing, investing in gold, and leveraging inverse ETF strategies.1
The timing temptation: Trying to time the market is a dangerous temptation, and 45% of advisors say this is the biggest mistake they seen their clients making right now.1 Part of managing volatility risk is making sure you communicate with clients about how they can keep their actions in line with their financial goals and help them avoid the pitfalls of panic.
The client experience: In stressful times, your clients will want to hear from you. The customer service experience is a key element of client retention. Three of the top four reasons clients give for leaving advisors are service-related: RIAs not returning phone calls (61%), not actively contacting clients (53%), and not returning emails in a timely manner (46%). Remember that even a 5% increase in customer retention can boost profits as much as 25%.
Think Long-Term
Even in bearish times, long-term stock holdings generally have a higher success rate than short-term holdings. From 1926 to 2018, holdings over 10 years had a 100% positive return, while one-year holdings were only 73% positive. And volatility doesn’t necessarily spell disaster: Six of the stock market’s 10 best-performing days have been within two weeks of the 10 worst.
Translation: While there are no guarantees in the market, and no way to know how the pandemic will unfold, volatility has always been an expected risk and a normal part of achieving long-term investment goals—as well as a cue for steady nerves.
Continue connecting with your clients personally to address any specific concerns they may have and talk them down from behavioral mistakes. They chose you as their advisor exactly for times such as these, so keep a laser focus on reassuring your clients that the long-term strategy you’ve built will support the hard work you have done together. That is how to stay the course in stormy seas.
Gabriel Garcia serves as managing director of Advisor Client Experience for E*TRADE Advisor Services. He joined the firm in October 2019. As a firm believer in knowledge-sharing to help spur new ideas and collaboration within the advisory industry, Mr. Garcia is focused on driving business forward. Previously, he served as managing director for BNY Mellon's Pershing Advisor Solutions, where he led its relationship management and consulting group and served on the executive committee.
- E*TRADE Advisor Services (ETAS), Advisor Sentiment Survey, March 2020