Diehl notes that while President Donald Trump and his administration have actively communicated and reiterated their policy stances and proposals, few have made it into Congress, and even fewer will eventually be passed and signed into law.
Advisors should also draw analogies to other politically divisive periods, like the Vietnam War era, or, for younger clients, the impeachment of President Bill Clinton, says Diehl.
“I think it’s helpful for advisors to acquaint themselves with political and social events and what happened to the markets during and afterward,” says Diehl. “When subsequent political events occur, they become new teaching moments for investors.”
While markets occasionally respond to political turmoil, as they did immediately after the U.K.’s surprise Brexit vote and the 2016 U.S. presidential election, the negativity typically doesn’t last long, notes Diehl.
Advisors are also feeling some anxiety due to political turmoil, with 20 percent reporting that concerns about domestic politics kept them awake at night, and 21 percent naming international politics as an insomnia-causing worry.
Advisors should keep their own anxieties and biases in mind when talking to their clients about politics, says Diehl, and try to keep their own political opinions out of the conversations.
“We find some advisors are very up-front about their political views, and it impacts the kind of clients they do business with,” says Diehl. “Most are better off leaving the partisan political discussions to the side. Most of these issues fall outside of things that impact the portfolios, and the way we live on a day-to-day basis.”
The 24-hour media cycle’s demand for controversial stories to fill time slots and grab attention has led much of the political press to pursue stories that aren’t consequential to most investors, says Diehl. Advisors and their clients are better off focusing on legislation that will directly affect their portfolios, like proposals to reduce the corporate income tax, eliminate estate taxes or reform Social Security.
Advisors in the study were equally split in preference between international and domestic markets, with 39 percent preferring either, and 22 percent either equally confident in both markets or undecided.
To date, most advisors aren’t recommending that clients de-risk their portfolios because of the political situation. While one-third of the respondents were recommending that their clients lower portfolio risk, half of the sample were recommending that clients maintain their current risk levels, and another 17 percent said they are encouraging clients to take on more risk.