High Volatility Creates Demand for Investment Advice
July 28, 2022 — Boston
Investors seek guidance when volatility emerges, creating new opportunities for advisors to collect assets but remain in the markets
As investors begin to see more red in their portfolios amid the first real bear market in 15 years, more are seeking financial advice, creating a unique opportunity for advisors to both attract new clients and position existing clients for the long term, according to the latest Cerulli Edge—U.S. Advisor Edition.
Investors have increasingly sought financial advice over the past three years as they grapple with less predictable markets. Plagued by declining equity prices, a broad scale economic downturn, and record-high inflation, investors are looking for somewhere to turn.
Over the last decade, which featured three notable upticks in volatility as measured by the CBOE Volatility Index (VIX), each advisor cohort outside of advisor-directed—those who give the greatest discretion over financial assets to advisors—has seen an uptick in net advice demand in the year following a volatility spike. In 2021, however, self-directed individuals reported for the first time the need for additional advice.
Cerulli notes that while there is a greater need for advice during periods of heightened volatility, investors still largely eschew making withdrawals from their accounts. Two months before the COVID-19 pandemic began, Cerulli found the share of investors expecting to make decreases in their investments remained stable at 6% of investors per month—maxing out at just 10% in April 2020. By contrast, the share of investors expecting to make net increases in their investments averaged 40% over the same period—with a post-pandemic high of 47% in November 2021, coinciding with the beginning of the current market dip. “Establishing long-term plans remains crucial for both advisors and clients, but in the short and medium term, tools such as tax-loss harvesting and risk re-adjustment could be critical to help ensure clients can enter the next market upswing in as strong a position as possible,” says research analyst, John McKenna.
Ultimately, market volatility can be intimidating for investors, especially those who are experiencing it for the first time. This is when they will be looking to advice channels for guidance, even if they do not have their own formal advice relationship. “For advisors, this can be an excellent opportunity to get in front of possible new clients by distributing timely information and knowledge about both the markets and the current situation to properly contextualize events,” says McKenna. “It also presents an opportunity to approach clients already in a formal relationship about long-term planning to ensure they will be in an advantageous position in the long run.”
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