Financial advisors may feel pushed to take more risk for their clients than they are comfortable with to try to find returns in the current near-zero interest rate environment, according to Mike McDaniel, chief investment officer for Riskalyze.
“One of advisors' biggest concerns right now is the search for income for retirees,” said McDaniel in an interview with Financial Advisor magazine. Riskalyze works with advisors to provide quantitative measurements of clients’ risk levels. “We help advisors develop a risk tolerance profile for each client and create a portfolio to match that.”
Despite the current market turmoil, this is not the time for advisors or investors to panic, he added.
“Advisors should proactively reach out to clients, particularly those who have a low risk tolerance, and use numbers to reassure them,” McDaniel said. “This is no time to move to cash. Advisors can look to 2008 and show clients in numbers where they would be now if they had moved to cash on a certain date during that earlier financial crisis."
An investor with a high risk tolerance is going to be less shaken by the current market than one with a low risk tolerance, he added.
“These are the times that investors need their advisors the most," McDaniel. "The worst disservice an advisor can do now is to pull back and not communicate with clients.”
Riskalyze added in a statement, “Psychology plays a huge role in how comfortable one is with investing, so advisors must have an honest conversation with their client about where their portfolio stands and prepare them for any potential loss” as this crisis continues.