This year's market volatility has taken a toll on investor confidence, which was shaky to begin with. After a series of body blows — starting with the financial crisis in 2008 and including, more recently, the U.S. debt ceiling dust-up and the European sovereign-debt crisis — investors have become increasingly confused and overwhelmed. Of even greater concern, they are apparently paralyzed when it comes to investment decision making. Wary of fixed income but hesitant about re-embracing equities, many investors are at a crossroads.
Investor disquiet is coloring views of the entire financial sector. Even before the most recent round of market and economic crises, investor confidence in financial institutions was already at a low ebb.
But the good news is that investors value professional financial guidance even more. In a recent Allianz survey of 1,003 investors with $250,000 or more in investible assets, 73% of investors with financial advisers and 53% of investors who don't use an adviser said that they think that they need a professional adviser now more than ever.
Advisers have a historic opportunity to enhance client relationships by helping investors come to grips with economic and market realities, prioritize their biggest fears and take steps in their portfolios — not only to help protect them from risks but also to take advantage of the market's inevitable opportunities.
Here are some tips for getting started:
Show clients that they aren't alone. Be visible and reach out to your clients. Although clients always appreciate contact with their advisers, they never value it more than when times are difficult. Taking the time to meet with them — asking them if they have any questions or would like to review their asset allocation and portfolio holdings — will build enormous
trust and good will.
Know clients' biggest concerns. Big market and economic events can trigger a whole slew of worries for your clients that can be tough to sort through when emotions are running high. Ask your clients what is on their minds and then just listen. By resisting the urge to dismiss or rationalize client concerns, you can cultivate the sort of trusting, open environment in which a client-adviser relationship thrives. If a client is reluctant to discuss his or her worries, you can jump-start the discussion by mentioning scenarios that you are hearing from other clients, such as being able to retire when they want to or finding alternative ways to generate critical investment income.
Help clients prioritize goals. Because you may not be able to invest the time to address all your client's needs, focus instead on the ones that align with his or her primary investment goals.
Act on your client's biggest risks. Just as there is risk in investing too aggressively, there is risk in taking too many measures to protect against all your client's concerns, or in overweighting some risks while neglecting to protect against other risks that might be more threatening. Taking care to not dismiss their fears, work closely with your clients to underscore risks in their portfolio they may not realize, and prioritize and document the risks to ensure that there is agreement on your focus areas. Then take steps to hedge against your client's biggest risk and create a risk budget, or distribute risks across the rest of the portfolio.
“Re-risk” portfolios for the long term. When it comes to staying effectively invested in volatile markets, a good solution is to create different allocations for different time horizons. For a long-term, more aggressive allocation, significant exposure to equities still makes sense. In particular,
dividend-paying stocks can smooth volatility and supplement capital appreciation over time, while international equities can diversify the client's exposure. For the medium term, moderate allocation, growth and income investments, or a balance between the two asset classes, help maintain exposure to equities while offering some yield on a possible downside. If short-term goals are a priority, take a more conservative approach by increasing your client's exposure to lower-volatility asset classes.
Client confidence and trust is a renewable resource that you can sustain by being there for clients, re-examining their deeply held concerns and responding with meaningful asset strategies that are refocused as necessary.
As the market's undulations continue, there is no better way to remind clients of the unique value you provide.
Kristina Hooper (kristina.hooper @allianzinvestors.com) is head of portfolio strategies for Allianz Global Investors Distributors LLC.
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