Advisers’ New Challenge Is Helping Investors Navigate Volatility

In its 2020 Global Survey of Financial Professionals, Natixis took a look at investors’ performance expectations and what advisers foresee will happen in the markets. Without question, according to Natixis, investors still expect outsized returns, and advisers who can temper those expectations and develop a strategy to help their clients weather market volatility will succeed.

The survey found that financial professionals expect that the MSCI World Index will be down 7.3% by the end of 2020 and that the S&P 500 won’t fare much better, declining 7% for the year.

“As the 2,700 professionals in 16 countries who participated in the 2020 Natixis survey contemplate the reality of the biggest market drawdown since the global financial crisis, they know the road to profitable long-term growth won’t follow the status quo,” Natxis says. One key area that advisers will need to manage, according to the investment firm, is being able to successfully “evaluate and address the expectations of clients struggling with an uncertain world and risky investment landscape.”

Natixis notes that the S&P enjoyed a 12-year bull market in which the average returns were 13% a year. However, in the 2020 survey, only 47% think markets will contribute to their practices’ growth.

“As the first step to growth, advisers will need to shore up current AUM [assets under management] by helping clients overcome emotional reactions to the pandemic market,” Natixis says. Seventy-five percent of professionals say investors forget that the 12-year bull market was unprecedented.

“The evidence in support of professionals’ concern is clear,” Natixis says. “Our own survey data shows a 121% gap between the market returns of 11.7% above inflation clients expect and the 5.3% above inflation professionals say is realistic.”

In the U.S., investors expect returns of 10.9% above inflation, whereas professionals say that is likely to reign in at 6.7%—an expectation gap of 62%.

Making the problem worse, according to Natixis, is that 76% of financial professionals say investors don’t recognize risk until it has already been realized, and 57% say investors don’t understand the risks of the current market.

Natixis also found an expectation gap between what investors think they can handle and what their advisers say they actually can.

Eighty percent of investors say they understand the risks of the current markets, while, as noted above, only 57% of professionals believe that is actually the case.

Sixty percent of investors say they are not focused on short-term returns, but 79% of professionals think that they are.

To manage this discrepancy, professionals believe they will have to do more than helping their clients’ investment performance (47%), Natixis says; they will also need to prevent their clients from making emotional decisions (44%).

Advisers are looking for other revenue streams, specifically, getting to know clients’ next generation heirs (43%) and offering services beyond investing (27%).

In order to realistically manage clients’ expectations, Natixis says, client communication is critical. The majority of advisers agree, with 54% saying frequent client communication is a critical element to growing client relationships. Forty-one percent say regularly reviewing clients’ financial plans is a must, and 50% say it is important to get to know clients personally.

“Financial professionals know well what’s at stake,” Natixis says. “In their assessment of why clients leave professionals, investment performance is near the bottom of the list. Instead, they rank not listening to the needs of clients (60%) and the failure to meet client expectations on communications (58%) as the two top reasons for losing clients.”