As the coronavirus pandemic continues to complicate personal, public and professional life, investors—and advisors—have much to digest.
While there’s no roadmap for the current environment, two surveys recently conducted by E*TRADE highlight some key similarities—and important differences—in how independent advisors and investors are interpreting recent events.
Bearing The Brunt
Not surprisingly, emotions—like the economy—are frayed. Advisors have grown more cautious: Over half (52%) of RIAs surveyed by E*TRADE in August reported a bearish outlook for the next quarter, tipping down from a majority bullish view in March. Market volatility remained the number one risk RIAs are managing (81%), while concerns over political risk moved up to tie recession fears for the number two slot (56%).1
Notably, this appears to jibe with the perceptions of individual investors, who reported in a separate E*TRADE survey that their top concerns for Q3 are health, the effect of the pandemic on the US and global economies, and investment portfolio performance. Interestingly, younger investors (18–34) were more concerned about job stability and career prospects than the general economic outlook.2
That’s not to say more seasoned investors are less worried about income stability: A recent survey from the Alliance for Lifetime Income found that seven out of 10 affluent retirement savers in the U.S. feel more pessimistic about their futures because of the pandemic, while 56% of those who are still working are now rethinking their retirement strategy.
Taken together, these studies support the idea that both seasoned professionals and individual investors are experiencing heightened bearishness, anxiety, and engagement with their financial strategies.
Will this state of affairs last—and what does it mean for client relationships?
Managing Client Relationships, Realities And Returns
One thing we know for certain is that as investors watch the market and worry about the trajectory of their portfolios, building solid client relationships has become increasingly important.
As 2020 marches on, more advisors are seeing their clients struggle with the temptation to time the market,1 and more investors are reporting their risk tolerance or trading frequency has increased.2 This reinforces the spike in client engagement advisors have seen throughout the pandemic.
One interesting point of comparison: Although two out of five RIAs said their client portfolios have fully recovered since the downturn,1 only 15% of self-directed investors felt their portfolios had already recovered, while 72% expected recovery to take anywhere from four months to five years.2
This gap in reported portfolio recovery between advisors and individual investors raises intriguing questions: Does an advisory relationship help build additional portfolio resilience? Do advisors and investors simply perceive performance, recovery, and traction toward goals very differently?
Offering Insights
A “behavioral investing” approach that accounts for human emotions and biases may help bridge the difference between how investors interpret their portfolio performance and how their current strategy actually stacks up to reality. With so many perspectives to consider and so much information available—not to mention non-stop access to the markets—dramatic sentiment shifts will likely persist.
To help steer conversations from emotion to solid strategy:
Acknowledge your clients’ reality. Sometimes it’s all too easy to brush past client concerns in the heat of a hectic workday, especially while balancing work-from-home challenges with family, health, or childcare needs. But beyond simply making clients feel heard and improving your interactions, taking the time to understand where your clients are coming from is the first step in figuring out how you can address their concerns.
Refocus on goals. No one knows what’s around the corner. While it’s important to listen to clients and let them know you care, advisors can provide value and support by shifting the conversation from the markets to individual goals: Have your client’s investment objectives actually changed, or is it simply time for a gentle reminder to stay the course?
Whether the bears or the bulls are right about the current environment remains to be seen, but maintaining a thoughtful, disciplined, and long-term investment approach is more critical than ever. An open line of communication between client and advisor can go a long way toward encouraging prudent client behavior while instilling goodwill.
Matthew Wilson is head of E*TRADE Advisor Services.
1. E*TRADE Advisor Services Independent Advisor Tracking survey, conducted in-house from August 4 to August 7, 2020, among a convenience sample of 299 independent registered investment advisors.
2. E*TRADE Advisor Services StreetWise quarterly survey, conducted from July 1 to July 9 of 2020, among an online US sample of 873 self-directed active investors who manage at least $10,000 in an online brokerage account.