During Crisis, Investors Expect Much from Advisers

According to a recently published Spectrem Group report, 74% of wealthy investors—those with a net worth between $15 million and $25 million—predict the American economy is heading toward a recession.

Their outlook matches those held by many professional money managers. According to a second quarter global market outlook study published by Russell Investments, the market stressors caused by the coronavirus pandemic make a recession in 2020 likely.

The Spectrem Group report warns that investors’ stances on the current market can easily translate to their views on their current financial advisers. While just over half of investors believe their adviser has been proactive in handling their investments during the crisis, 10% say they would be better served with a different primary adviser.

“Investors have now had two months to assess the performance of their financial adviser in response to this crisis, and while there is a general satisfaction with how advisers have addressed their needs, many investors are rethinking their professional relationship with their adviser,” says George Walper, president of Spectrem Group.

Walper encourages advisers to continue to focus on helping investors cope with investment losses without responding emotionally. Despite the national social isolation orders, he says, there has been an uptick of industry professionals communicating with their clients and investors via telephone and online formats.

“The level of communication we’re seeing has been better,” he tells PLANADVISER. “Recordkeepers are also reaching out to sponsors and participants, utilizing FaceTime and Skype.”

Setting Expectations

Dave Goodsell, executive director at the Natixis Center for Investor Insight, notes that in his company’s research, investors tend to expect to receive higher returns than what advisers predict. “We asked investors what their return expectations are, and the average was 10.9% above inflation,” Goodsell explains.

“Financial advisers say 6%,” he adds. “The difference in expectations is really contributing to this shock.”

It’s important for advisers to interpret and rationalize for clients what is going on in the market, Goodsell says. And of course, instead of focusing on the short term, ensure participants understand how a long-term outlook and strategy can lead to higher returns.

According to the Spectrem Group, 15% of high-net-worth investors have sold equities in recent weeks, and 21% have purchased equities in order to take advantage of lower prices in the stock market. Goodsell says advisers are focusing on long-term results over short-term performance, but investors are considering the opposite.  

As investors are growing concerned over how finances will affect their day-to-day lives—including their health care costs and taxes—their connection between risk and reward can warp. Financial advisers can thus really become an investor’s point-person—a trusted source to turn to in navigating the market.

“An adviser might be the only person participants can talk to in terms of finances,” Walper says. “They have to communicate with their clients on how they can help them understand that their financial situation has changed.”