Advisors must be better communicators to create more resilient clients, according to a recent report by FactSet.
Volatility should eventually rise off of its historic lows and another market downturn is almost inevitable, and high-net-worth investors continue to demand more education and more points of contact from their advisors, especially during and after market downturns, writes Norwalk, Conn.-based FactSet in “The Resilience Agenda.” The burdens of teaching today’s high-net worth investors falls primarily on financial planners.
In an international survey of high-net-worth investors with at least $500,000 in net worth, FactSet found that 60 percent were concerned about the impact of unforeseen market events on their ability to grow their wealth. Approximately one-third of the respondents wanted to hear from their advisors during a market crisis regardless of the impact on their investment.
According to FactSet, advisors need to be more assuring to their high-net-worth clients to instill confidence in their financial plans. The researchers recommend faster response times when communicating market analysis after a market shock, and more transparency when it comes to portfolio allocation and performance.
Younger high-net-worth investors are especially demanding when it comes to transparency and evidence, says FactSet, noting that 40 percent of survey respondents under 35 felt like they didn’t receive enough clarity on their portfolio’s composition.
Many of the survey’s respondents seemed not to fully understand their asset allocation and the significance of their risk profile. Fewer than half of the respondents could understand why they were given their risk profile or why it could influence their portfolio. Only 32 percent felt like their risk assessment was comprehensive.
Many high-net-worth investors change their risk profiles frequently, according to FactSet, most likely in responde to market and political events.
High-net-worth investors should be exposed to the risk profiling process, argues FactSet, so that they understand the impact of their behavioral tendencies on their portfolio allocation. Advisors should also implement controls to steer clients away from impulsive decisions.
While many of the respondents in FactSet’s survey were exposed to information about market outlook by their advisors, few were able to access information about risk management, investment criteria and thought leadership on long-term issues.
According to FactSet, investor education is failing to raise the financial literacy of high-net-worth individuals. Advisors have to close the gap with interactive teaching techniques and engaging market insights.