With sharp declines in the equity markets and stock volatility reaching historic levels, we find ourselves in a very challenging environment these days, to say the least.
So, how are financial advisors coping with the financial crisis?
How are they communicating with clients in this challenging environment?
What do they think of the government’s historic intervention?
What is their outlook on the economy and stock market?
We reached out to advisors to find out more about these issues. While the picture surely isn’t rosy, many advisors are taking the right actions to retain clientsand withstand the turbulence.
Advisor confidence in the economy and stock market, as measured by the Advisor Confidence Index, sank to 79% in October, down almost 20% from August—the lowest level in the index’s four-year history. According to one survey participant, Richard Coe (a 25-year industry veteran), “I have never been more concerned about the stock market than over the last few weeks.” Many advisors agreed that while there will be more volatility to come, opportunities are out there. “The economy is likely to remain very poor for an extended period, but market volatility promises to provide significant opportunities for those flexible enough to capitalize,” commented James Dailey of Team Financial Management.
RydexAdvisorBenchmarking.com
Advisor Confidence Index
Most of the advisors expressed support for the financial bailout the government designed to put confidence back into the system. Two-in-three financial advisors believe the government's Wall Street rescue plan will work.
Taking Action in a Challenging Market
Given the market’s turbulence, we reached out to advisors to find out what they are doing now to reassure clients and how they’re positioning portfolios for the gyrations of an unpredictable market.
- Parking in cash. In spite of the scare around money funds breaking the buck, government backing and market turbulence have led many investors to seek the safety of money markets and other cash-based products. In a pre-emptive move, more than half of the financial advisors surveyed moved their clients’ money to cash prior to the financial crisis, which helped them weather current market conditions. In the next few months, 51% of advisors surveyed are planning to maintain current asset allocations.
- Using alternatives in portfolios. In these challenging market conditions, alternative investments have become more popular. Twelve percent of advisors increased their allocation to alternative investments in the past few weeks and 37% of advisors employed alternative investments prior to the financial crisis in order to help their clients, portfolios better handle the current volatile market. Twenty-two percent of advisors are planning to increase allocations to alternatives in the near future.
- Empathetic and proactive client outreach. Because clients are more stressed in a volatile market, it’s important to have a game plan for communicating key issues as concerns about jeopardizing their financial future escalate. As an advisor, one goal is paramount: Keeping your clients investing with you. The good news is that advisors are proactive in reaching those goals. The advisors we surveyed said they have discussed the current market drop with their clients and have been proactively calling (83%) and communicating to their clients through email (66%). Almost half (44%) of advisors surveyed have been proactively meeting with clients. Almost half of the advisors were actively reaching out to their clients before the financial crisis and are continuing to do so.
The crisis has been very dramatic and has made a huge impact on everyone. So, which course of action should you take now?
 Act now. Don’t be paralyzed by tough times.
Consider adding alternative investments to your clients’ portfolios.
Discuss your thoughts with clients and what it might mean. Encourage them to see opportunities.
Use this opportunity to educate your clients regarding portfolio diversification in turbulent times.
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