Accessibility and Understanding of Investors’ Risk Tolerance Levels Will Help Advisors Retain Assets During Turbulent Market Conditions
March 2, 2020 — Boston
Recent market volatility should prompt advisors to reinforce their value proposition through proactive outreach and risk analysis
More than half (53%) of affluent investors expect a recession to set in before the end of 2021. With this expectation in mind, it is incumbent upon advice providers to address these concerns as part of their 2020 client engagement model, especially as more may come to believe that a downturn is “due,” thereby causing them to make sub-optimal decisions driven by their biases and expectations.
Cerulli’s latest research, focused on retail investor behavior, examines how investors perceive their advisors to have performed through the recession of 2008–2009 and assesses the factors that contributed to these perceptions. When asked to grade their advisors’ performance on a scale of one to five, with one representing a complete lack of preparation and five indicating unblemished preparedness, 56% of investors surveyed award their advisors a rating of at least four.
When asked which of their advisors’ behaviors were most beneficial in dealing with the impact of the last recession, respondents most frequently cited accessibility and understanding their risk tolerances. “These results underscore the importance of not only maintaining open lines of communication with clients, but also proactively contacting them during the most volatile times,” according to Scott Smith, director of advice relationships. “By establishing the expectation that portfolio volatility is a probable part of their long-term investment lifecycle, advisors can intrinsically strengthen their client relationships and transform the event into an asset-gathering opportunity,” he adds.
According to Cerulli’s research, in the wake of the 2008–2009 market downturn, those advisors who were most active in communicating these expectations received an elevated level of referrals from their clients whose friends and family were not receiving that level of outreach from their own advisors.
Taking a proactive communication approach is essential to minimizing the potential anguish current clients may experience during times of market volatility. During good times, advisors should actively discuss their clients' risks and financial goals and build an investment plan around these goals such that good market performances can be captured, but also to ensure that the plans and goals stay on track during leaner times and risk is properly accounted for in portfolio construction and goal planning.
Note to editors
These findings and more are from The Cerulli Edge—U.S. Retail Investor Edition, 1Q 2020 Issue.