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Ten years after the crisis, investors need advisers more than ever

Emphasize the importance of maintaining a fundamentally diversified portfolio

Dec 20, 2017 @ 6:00 pm

By John Diehl

Hartford Funds recently conducted a survey to uncover how investors were affected immediately after the financial crisis and how financial behaviors have changed in the years following, including now, a decade later. The resulting data suggests that Americans are confused, complacent and in need of direction.

Although 40% of survey respondents reported that the recession did not impact their lives, 42% admitted that they avoid the stock market and 46% have altered their spending and savings habits. In short, the survey numbers indicate that despite the eight-year-strong bull market, investors may need advisers now more than ever.

WHY THE DISCREPANCY?

The dichotomy between saying the financial crisis didn't affect their lives and changing their financial behaviors to mitigate loss represents a significant investor need for education and perspective. Without even necessarily realizing it, the financial crisis did and continues to affect investors in ways that could have detrimental long-term consequences.

It's up to the financial adviser to help keep clients on track to achieve their financial goals, so advisers should consider asking clients what immediate impact the financial crisis had on them, and what personal financial changes are still in place today.

Get a pulse check on where they stand, and then segue into a discussion reminding them that markets are turbulent, but emotional investments and knee-jerk reactions based on fear are best avoided. Use the recession as a lesson to help investors make progress towards their goals and emphasize the importance of maintaining a fundamentally diversified portfolio.

DON'T WORRY — PLAN

When asked what they are doing to prepare for a future market downturn, only 17% of the survey respondents indicated that they feel confident enough in their current investments.

The implication of this statistic is that anxiety, or at least insecurity, is prevalent among the majority of investors, despite their forgetfulness regarding the repercussions of the financial crisis. Financial anxiety is natural, because money and retirement are important topics, but this result also reveals another contradiction and therefore another opportunity for advisers.

Whether investors are overanxious or overconfident, a thoughtful plan is key. Financial advisers should work with their clients to formulate a strategy that can help withstand changing markets, so that they can refrain from being too vulnerable to the effects of another recession or too worried about trying to avoid one.

Explain how the plan is designed to help investors take advantage of the upticks and offset the downturns of the market, so that they can feel more prepared and more confident that their investments can sustain volatility.

FIGHT INERTIA

In response to the same question of what investors are doing to prepare for the next market downturn, nearly half — 43% — said they are taking a "wait-and-see" approach. In other words, investors are inert and not being proactive about appropriately allocating their investments, which could leave them exposed to potential damage in the event of another recession.

Taking a "wait-and-see" approach essentially means that investors are coasting without guided, trusted advice, and that could lead to harsher consequences when markets move. Financial advisers looking to court new or prospective clients, or to recalibrate with existing clients, can use this result to demonstrate the value of their direction and insight.

Show clients that going it alone can be problematic because investors can be short-sighted (for example, saying that the financial crisis didn't impact them but making financial changes nonetheless), whereas a trained financial professional could provide the full bird's-eye view. Complacency can be risky, so advisers should show investors how their inaction might result in money getting left on the table.

These survey results tell us that, no matter the conditions, markets can leave investors confused, worried and frozen, all of which could prevent them from reaching their financial goals.

Even though they say the financial crisis had no impact on their life, investors are still carrying the weight of many emotions with them ten years later.

Not only do these survey results reveal the real, lasting effects of the financial crisis, but they can also help advisers discover new opportunities to excite and delight their clients, old, new and pending.

John Diehl is Senior Vice President of Strategic Markets at Hartford Funds.

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