The Vanguard Group will be releasing new research that offers practical guidance to help advisors coach their clients through the coming tumultuous economy as a new Pulse Survey the firm released emphasized the importance of a financial advisor to their client.

The tools are part of the Malvern, Pa.-based firm’s ongoing effort to promote the value an advisor provides beyond just managing a portfolio. While the industry has been recently pushing for advisors to expand beyond this task, Vanguard has been celebrating it since 2001.

“Advisors add value or alpha beyond just doing the portfolio,” said Colleen Jaconetti, senior manager in Vanguard’s Investment Advisory Research Board in Financial Advisor Services (FAS). “The portfolio is important … with financial planning and behavioral coaching advisors can add more reliable and predictable value then maybe trying to outperform the market with security selection.” 

The guidance package releases at the end of the second quarter and contains papers highlighting the importance of staying the course with investments. They will help advisors execute the behavioral coaching they should be engaging in with their clients. The basic premise of coaching is to ease a client’s fears about the fluctuations in the market.

“Behavior coaching is really advisors helping their clients maintain a long-term perspective and disciplined approach to investing,” Jaconetti said.

Investors have a tendency to read the news or see how the market is shifting and react to that. In many instances, those actions come too late and cost an investor more money than if they just remained in the fund, according to Jaconetti.

“Investors tend to buy a fund after the peak performance has happened and sell the fund when underperforming, so they’re really buying high and selling low, which is the oppositive of what they’re trying to do,” she said.

She cited what sort of impact such a knee-jerk reaction could have on a hypothetical account with $1 million that was invested equally in stocks and bonds. If on March 20, 2020, the worst market day during the pandemic, a client panicked and dramatically changed their assets to 100% cash, their account would drop by 16% for a loss of $160,000, by Dec. 31, Jaconetti explained.

If they decided to move all their assets into bonds, the account would have been down 25% for a loss of $250,000 in that same timeframe, she added. However, if the clients had not made any changes, through Dec. 31, their account would have increased by 4% and they would have made $40,000.

“That is a pretty meaningful way that we say advisors listen to their clients, have a financial plan, and then helping them stick to that plan can add years [of value] to these types of interactions,” Jaconetti said. 

Behavioral Tools
As part of the package, Vanguard will be releasing tools to help advisors promote stability and the importance of not panicking. They include a quote chart that demonstrates what asset classes outperform and under perform. There will also be another tool that highlights “alternative histories” on what might have happened to an investor had they pulled out of the market during specific downturns throughout history. 

“It's just really finding a way to help advisors ... articulate their value in a positive way that doesn't seem computing points,” she said.

Recent Research
The tools coincide with a new Pulse Survey the firm conducted earlier this month that surveyed more than 880 financial decision makers over 21. It found that those who worked with a financial advisor had a more positive outlook on their future than those that didn’t. Of those surveyed who said they worked with an advisor, 65% had a positive outlook compared to the 46% of those that didn’t work with an advisor who said they had a positive outlook on the future.

Throughout several aspects of financial life investors were more inclined to take the steps they needed with an advisor as opposed to those who did not. Those who took the steps to put together a financial plan together who worked with an advisor was 74% of those surveyed with only 32% taking steps toward a plan who didn’t work with an advisor. A similar gap existed with those taking steps toward making investments as 74% working with advisors took steps opposed to the 38% not working with an advisor who did not take steps.

3 Aspects Of Coaching
The importance of developing a financial plan and sticking with it as at the heart of behavioral coaching, Jaconetti said. There are three main aspects to coaching: proactive, reactive, and audit.

In the first stage the advisor works with the client to establish the financial planning including goals and timeframe and setting realistic expectations. In the second stage, it is checking in with clients when certain market fluctuations take place and responding accordingly. It might require some hand holding, but Jaconetti said in certain cases, it makes sense to change to help calm the investor down.

“We're not abandoning the plan but [the investor] wants to be more conservative so I think there is a give and take there, so I don't think it's all or nothing,” she said. “It's kind of meeting them where they are and helping them to have peace of mind and do the best that they can.”

The final stage is an audit where the advisor and the client go back and look over what took place and explain the value of the steps taken as well as any missteps. This stage takes place up to six months after things have calmed down, according to Jaconetti.

She clarified that staying the course does not mean to set it and forget it in terms of moving ahead with a plan. There is a certain level of rebalancing that needs to occur and it can be difficult. However, that is when the true value of an advisor is on display, she said.

“Rebalancing can be difficult for people because it's really hard to sell something that is outperforming and reinvest that money into something that is underperforming,” Jaconetti said. “It’s hard to do and the discipline that the advisor provides is very valuable.”