Financial advisors facing new pressures in volatile economy

Americans, in this post-pandemic era of raging inflation, crashing markets, and international turbulence, say they want and need professional investment advice more than ever, according to some surveys. Yet this puts renewed pressure on financial advisors to stay current and develop successful strategies during unstable periods. The days of smooth skating in an up market are over.

A new study by Allianz Life found 93% of Americans believed setting financial goals and developing a plan to achieve them is important to helping support their future ambitions. More than 86% cited benefits of working a financial professional.

“So many Americans are in a vulnerable spot right now with their finances, it’s encouraging to see the high value placed on not only the practice of financial planning, but also the guidance of a financial professional,” said Kelly LaVigne, vice president of Consumer Insights at Allianz Life. “The pandemic changed a lot of expectations around finances and creating a retirement strategy, so now is the right time for financial professionals to understand, adapt, and meet clients where they are.”

Those already working with a financial professional are feeling significantly more prepared to manage a number of potential risks to their retirement, the Allianz survey found, including:
• Saving enough
• Having a plan for retirement income
• Addressing the rising cost of living.

But at the same time, more than half of the respondents said they’ve never worked with a professional financial advisor and about the same number said they had no plan for taking income in retirement.

Pre-retirees, the survey found, expect a different level of engagement with their financial professional, in terms of both service and strategy. A higher percentage of pre-retirees expect their financial professional to be tech savvy, offering interactive tools to understand finances under a variety of scenarios and being flexible with meeting options, including virtual meetings, to meet their needs. In addition, more pre-retirees are interested in exploring a non-traditional life path where they may try different things at different times instead of following the traditional school-work-retirement path.

Many feel under-served

Many customers feel under-served by their traditional financial institutions, said Joshua Jimenez, of MoneyMap, and younger investors are turning to fintechs for advice.

“We are seeing more end users wanting personalized financial advice,” Jimenez said. “The rise of Neobanks that target certain demographics and personal financial management apps aid their general finances, but only up to a certain level. More complex problems require a trained professional.”

There are signs that the advisor industry was spurred by the pandemic to develop innovative software that helps advisors stay current and up to date.

“These programs allow advisors to track their clients' investment portfolios, monitor social media for potential red flag risks related to the economy or health concerns, scan news headlines for any emerging trends that could have implications on investments or client accounts, and more,” said Paw Vej, COO at Financer.com. “In addition to these risk management tools, many financial advisors also offer counseling services related to managing finances during challenging times. This can include providing guidance on how best to prepare for a global recession or investing during periods of political uncertainty.”

Staying up to date 'critical'

“Staying current and up to date is critical for financial advisors in the post pandemic era of high inflation,” said Oberon Copeland, owner & CEO Of Veryinformed.com, adding, “As we have seen over the past year, the pandemic has had a major impact on the economy, and this is likely to continue in the coming years. Inflation is one of the biggest challenges that we face during periods of economic uncertainty, and it can have a significant impact on investment portfolios.”

“One way that advisors can stay current is by subscribing to economic news sources and reading updates from the Federal Reserve,” Copeland said. “By staying informed, financial advisors can help their clients navigate these challenging times and protect their wealth.”

Given the volatility in the markets and rising inflation, there are some things financial advisors can do to stay in-the-know on different products or solutions to help meet client needs, said Jason Steeno, the president of CoreCap Investments and Advisors in Southfield, Mich.

Among those, he said, is to leverage their registered investment advisor’s in-house resources,

“Often times, the chief investment officer’s team is searching for products that may help to provide a hedge or provide a non-correlated asset to offset a declining market,” Steeno said. “This could be with managed options strategies, alternative investments or other types of products that could be a fit for clients. This is the first resource any advisor should be checking to get more information on products.”

Steeno also recommended advisors tap into their peer network, a consistent refrain from advisors.

Connect with other advisors

“The best source for keeping current is connecting with other advisors” said Matthew D. Grishman, principal, Wealth Adviser at Gebhardt Group Inc. “I see our industry as one gigantic team on a critical mission to help our world have a healthier, more intentional relationship with money. And the more we collaborate, the better off our clients and society will be because of it.”

Many advisors, he said, shy away during turbulent times out of fear of not knowing what to say to clients other than ’Hang in there. This too shall pass. We are in this for long run.’

“As a result, advisors often miss out on the incredible once- or twice-in-a-career opportunities markets like these give us to deepen and expand our client relationships,” said Grishman. “It is critical for advisors to keep their heads on a swivel, with their eyes and ears wide open in times like these.”

Don’t hide under your desk waiting for the storm to pass, Grishman advises.

“Plug in. Stay connected with other advisors,” he said. “They are your key ingredient to helping you help your clients navigate these very tricky times with their retirement savings. As we all work together to share ideas and get better at our craft, everyone wins.”

Robert Johnson, professor of finance at Heider College of Business, Creighton University in Nebraska, and co-author of “Investment Banking for Dummies,” among others, said turbulent times proved an opportunity for advisors to return to basics.

“The four most dangerous words in the English language with respect to investment is ‘This Time is Different,’” he said. “I think advisors and investors too often want to make things too complicated. The acronym KISS (Keep it Simple, Stupid) should guide investment decisions in both turbulent times and calm times.”

One of the key principles to keep in mind, Johnson said, is that if you can't value it, don't invest in it.

“This particularly applies to the cryptocurrency markets,” he said. “We have individuals investing in crypto and they have no idea how to value it. They simply buy it with the hope that it goes up in price. I saw a recent quote that resonated with me: ‘A good rule of thumb is, if you don't understand something well enough to explain it to a 10-year-old, you probably shouldn't invest in it.’"

Being prepared is also necessary dynamic for times such as these, advisors say.

“The most important factor is to be prepared for a situation before it happens,” said Jon Ekoniak, managing partner at Bordeaux Wealth Advisors, in Menlo Park, California, which manages more than $4 billion in assets. “Preparing for a market downturn must take place before the market declines. If you are in reactionary mode, chances are that you missed your opportunity.”

As Johnson noted, Ekoniak also believes in falling back to basics.

“We do not need to reinvent the wheel each time we experience volatility,” he said. “While every situation may have its own unique set of circumstances, it is important to build and maintain a large tool chest of investment opportunities so you can leverage the ones that are most appropriate for the current market scenario.”

Developing a niche is important

Developing a niche is also important at times.

“A better strategy is frequently to become an authority in a particular field, such as helping retired athletes or the software industry,” said Levon Galstyan, CPA with Oak View Law Group. “By specializing in a specific area, you may more easily set yourself apart from the competitors, enjoy lower levels of competition, win over more clients, and possibly charge more.”

Galstyan also advises to be cognizant of changing demographics.

“In the past, young to middle-aged men who connected with middle-aged to older men made up most of this industry,” he said. “Today that is swiftly altering. Now women control two-thirds of the private wealth in the United States, up from their current ownership of more than half. Additionally, younger generations are participating in and building their wealth faster than ever before. Advisors must ensure that their team is as varied and vibrant to engage with this dynamic set of customers.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].