Dampened economic optimism and renewed focus on wealth protection offer chances for advisors to show value
The coronavirus pandemic’ impact on the global economy and financial markets has left an indelible mark on investors’ risk appetite, necessitating a new wave of advisor conversations, according to new research from Cerulli Associates.
Based on a monthly survey of U.S. retail investors it conducted, the firm reported that net economic optimism fell 90 points between February and March 2020 – just as the COVID-19 pandemic began to heavily impact the economy and financial markets – from a positive of 54% to a negative level of -36%.
Against that backdrop, investors indicated higher interest in adopting a holding pattern for their portfolios, with 60% of respondents in March saying they plan to make no changes to their overall investments.
“Advisors should be heartened by these developments, as the risk of people panic selling investments at a down point appears low, but this does mean that the money that was added during the good times should be prudently cared for so that it optimally serves clients’ long-term goals,” said lead investor practice analyst John McKenna.
However, Cerulli also noted an increased tendency for investors to identify as “aggressive” in their investment approach, rising from 9% in January and February to 12% in March. That suggests a broad desire to buy when the market is low, while possibly disregarding the risks presented by heightened market volatility during the period.
“The current period of market volatility, in combination with a global pandemic, has the
potential to fundamentally change investors' risk appetite,” the Cerulli report said. “As such, advisors should revisit the topic, both to help reassure their clients of the expectation of events such this in the lifecycle of a long-term portfolio, and to understand if there have been any significant changes in a client's risk appetite.”
With wealth protection now at the forefront due to the recent market volatility, it suggested that advisors continue to focus on long-term planning for younger households, adding that discussions on more conservative investments for near-retirees may have to occur earlier than planned.
The report also highlighted the increasingly crucial role of digital technology, noting severe constraints imposed by social distancing and non-essential business closures coupled with the need for advisor-reliant households to not fall behind with respect to their financial life.
“Leveraging these tools not only increases the value advisors offer their clients, but also serves as an important bridge at a time when nearly every in-person interaction makes its way online in the name of public health and safety,” McKenna said.
