"Once-in-a-lifetime" financial crises have been accelerating. It took roughly 40 years from the Crash of 1929 to the Bear Market of 1968, but now "outlier" events happen nearly every decade.
New findings from Nationwide's seventh annual Advisor Authority study, powered by the Nationwide Retirement Institute® and conducted online by The Harris Poll, of nearly 2,500 advisors, financial professionals and individual investors, reveal that the Global Financial Crisis of 2008 had the most profound impact on investors—but they continue to struggle with the financial fallout of the COVID-19 Pandemic—driving their desire for guided advice and need for comprehensive financial planning.
"Our seventh annual Advisor Authority study makes it clear that working with an advisor or financial professional on a holistic plan is fundamental for investors to have the confidence they need to confront the impact of compounding financial crises," said Craig Hawley, Head of Nationwide Annuity Distribution. "Last year was a powerful reminder that the unexpected can shock the system, re-define our lives and our finances, and have an outsized impact on everything from portfolios and retirement plans to investors' psyches and their advisors' practices."
85% Blindsided By Outside Events
Investors with investable assets of $100,000 or more were most likely to say the 2008 Crash and subsequent Global Financial Crisis (37%) had the most profound impact on their approach to finances and investments. This clearly surpassed the 2020 COVID-19 Crash and Recession (28%), and substantially exceeded the impact of every other major financial crisis over the past century, including the 2001 Dot-Com Crash (9%), the 1990 Recession (6%), Black Monday in 1987 (4%) the 1981 Recession (6%), the OPEC Embargo in 1973 (3%), the Bear Market of 1968 (2%) and the Crash of 1929 and Great Depression (5%).
Yet it is also clear that financial pressures from the pandemic are not over yet. While investors with an optimistic financial outlook increased 13 points from last year (49% in 2021 vs 36% in 2020), this is still down from prior years (55% in 2019, 62% in 2018, 51% in 2017). In fact, 65% of investors are still concerned about a U.S. Bear Market over the next 12 months,61% anticipate market volatility will increase and 69% are concerned about a U.S. economic recession.It is also sobering to learn that just likelast year, during the height of the pandemic,85% of investors continue to say they can do all the right things to manage their finances and still be blindsided by outside events.
"Investors' demand for advice and the need for holistic planning will continue to rise as multiple factors keep chipping away at their confidence, their outlook becomes increasingly uncertain, and goals difficult to achieve," Said Mark Hackett, Chief of Investment Research, Nationwide Investment Management Group. "Economic and earnings headwinds have emerged, compounded by ongoing supply chain issues and uncertainty in Washington, and volatility ramps up, as the Fed signaled a shift in policy, including the start of the taper, rising rates and the steepest yield curve in months."
More than two-thirds of investors (68%) expect to live through more financial crises. While 11% expect to live through one more crisis, 22% expect to live through two more crises and 35% expect to live through three or more additional crises in their lifetime. Nearly one-third (32%) say they don't know or are unsure how many more crises to expect.
But there is good news. A full 91% of investors who have an advisor or financial professional say that working with their advisor or financial professional helps them feel more confident that they can make the right investment decisions—even during an extreme financial crisis. And 89% of investors say that having a plan for their investments helps them feel in control—even if they can't plan for everything.
Financial Professionals Regain Their Footing Faster
On the other hand, advisors and financial professionals with an optimistic financial outlook not only increased 25 points over last year (63% in 2021 vs 38% in 2020), their level of optimism this year is equal to or greater than four of the past five years (50% in 2019, 64% in 2018, 54% in 2017, 63% in 2016). But while advisors and financial professionals are much more positive about the year ahead, they remain clear-eyed about the challenges, with 77% still concerned about a U.S. Bear Market over the next 12 months,79% anticipating market volatility will increase and 76% concerned about a U.S. economic recession.
Rising optimism in the face of outsized challenges reveals that advisors and financial professionals have built more confidence than investors after confronting the impact of compounding financial crises. In fact, after living through prior crises, 70% of financial professionals feel more confident about their ability to help protect their clients' finances and investments should another crisis arise, compared to only 44% of investors. Likewise, 69% of financial professionals feel more confident about their ability to help clients prepare for and live in retirement, compared to only 41% of investors. Meanwhile, 66% of financial professionals feel more confident about investing their clients' assets in the stock market, compared to just 38% of investors.
Investors See Opportunity — But Proceed With Caution
Many investors changed their behavior in response to the crisis that had the most profound impact on them—some for the better and some for the worse. Investors' top three changes to their personal finances were proactive and practical. These included establishing and following a budget (22%), starting to work with an advisor or financial professional (21%) and starting a "rainy day" fund and/or "emergency fund" (21%). Meanwhile, 39% said they made no changes when it came to their personal finances and they "stayed the course" with their long-term financial plan.
Likewise, investors' top three changes to their investing approach showed a sense of caution, as well as a sense of opportunity. These included managing investments more conservatively (20%) and adopting a new strategy to protect assets against market risk (17%) while at the same time using the market decline as a buying opportunity (17%).However, 37% said they made no changes when it came to their investing approach and they "stayed the course" with their long-term financial plan.
But some investors made less beneficial financial and investing decisions in response to the crisis that had the most profound impact on them. These included liquidating assets from qualified retirement savings plans to cover financial obligations (12%), liquidating assets from non-qualified investment accounts to cover financial obligations (12%), moving the majority of their investments from stocks to cash (9%) and panicking and selling investments at a loss (7%).
Creating Control In Times Of Crises
To create a sense of control and security for clients during recent market crises, advisors and financial professionals were most likely to educate clients on market cycles (44%), listen to their needs and concerns (43%), focus on holistic financial planning (38%) and identify buying opportunities (36%).
But despite the fact that 91% of investors who work with an advisor or financial professional say that this helps them feel more confident they can make the right investment decisions, only 63% of investors are currently working with one. So there is room to grow and the opportunity is huge. And while 89% of investors say that having a plan for their investments helps them feel in control, it's clear that there is a preparation gap and many could benefit from more comprehensive holistic planning.
Closing The Preparation Gap To Help Protect Assets
When it comes to protecting assets, it's obvious that many investors could be better prepared. While 93% of advisors and financial professionals have a strategy in place to protect their clients' assets against market risk, only 66% of investors have a strategy—an almost 30-point preparation gap.
While advisors and financial professionals (55%) and investors (49%) say they are most likely to rely on diversification to manage market risk, our findings also reveal that investors have a shortfall—and financial professionals have an opportunity for educating clients. First, advisors and financial professionals are much more likely than investors to deploy a broad range of risk management solutions, including Hedging Strategies (39% vs 20%), Liquid Alternatives (38% vs 23%), Smart Beta ETFs (31% vs 11%) and Non-Correlated Assets (31% vs 10%).
In addition, advisors and financial professionals are also much more likely than investors to use a range of annuities for protecting assets against market risk—including Fixed Annuities (48% vs 29%), Fixed Indexed Annuities (46% vs 23%), In-Plan Principal Protection Guarantees (38% vs 22%) and Registered Index Linked Annuities (35% vs 11%). Likewise, 88% of financial professionals compared to just 55% of investors are likely to use an annuity to protect against market risk as part of a holistic financial plan in the next 12 months.
Protecting Retirement Against Future Crises
It's encouraging that 87% of advisors and financial professionals and 82% of investors have a strategy to generate guaranteed income in retirement. Yet 92% of financial professionals compared to just 74% of investors have a strategy in place to help protect against outliving savings. This nearly 20-point preparation gap reflects the fact that investors are more reliant on Social Security and less adept at leveraging other solutions at a time when pensions plans are disappearing, the safety net is under threat, and people are living longer.
In fact, while advisors and financial professionals (51%) and investors (62%) are both very likely to use Social Security to help protect against outliving savings, advisors and financial professionals are more likely than investors to use a wider range of solutions including Dividend Yielding Stocks (49% vs 37%), Fixed Income Ladders / Bond Ladders (46% vs 16%), Yield Generating ETFs / Income Generating ETFs / Multi-Asset ETFs (46% vs 19%), and Defined Benefit Plan / Pension (42% vs 37%).
In addition, advisors and financial professionals are roughly two to three times more likely than investors to use a range of annuities which can guarantee income for life that will never run out, including Variable Annuities with living benefit riders (48% vs 26%), In-Plan Income Guarantees (42% vs 29%), Single Premium Immediate Annuities (38% vs 10%), Longevity Insurance / Deferred Income Annuities (36% vs 14%) Qualifying Longevity Annuity Contracts (36% vs 12%) and Contingent Deferred Annuities (30% vs 13%). Likewise, 89% of advisors and financial professionals compared to only 58% of investors will use an annuity to protect against outliving savings as part of a holistic financial plans in the next 12 months.
Nationwide's seventh annual Advisor Authority study powered by the Nationwide Retirement Institute® explores critical issues confronting advisors, financial professionals and individual investors—and the innovative techniques that they need to succeed in today's complex market. This is the second in a series of ongoing releases from the seventh annual study.
About Advisor Authority: Methodology The seventh annual Advisory Authority Survey was conducted online within the United States by The Harris Poll on behalf of Nationwide from July 22 – August 17, 2021 among 1,632 advisors and financial professionals and 839 investors, ages 18+. Among the 1,632 advisors and financial professionals, there were 790 RIAs, 790 broker-dealer, 501 wirehouse and 160 other financial professionals. Among the 839 investors, there were 210 Mass Affluent, 210 Emerging High Net Worth, 210 High Net Worth and 209 Ultra High Net Worth. Investors are weighted where necessary by age by gender, race/ethnicity, region, education, income, marital status, household size, investable assets and propensity to be online to bring them in line with their actual proportions in the population. Respondents for this survey were selected from among those who have agreed to participate in Harris Poll surveys. Because the sample is based on those who were invited to participate in Harris Poll online research, no estimates of theoretical sampling error can be calculated.