our research has shown that the likelihood of switching advisors increases during negative market conditions

Insights

In today’s market volatility, what should advisors focus their time and effort on? This article provides research-based insight into what investors need most, and how advisors can navigate the volatility to build even greater client engagement. It provides a straightforward list of five key priorities for the current conditions, and clearly explains why these priorities should be paramount.

 

Environics has been conducting regular research among Canadian retail investors and the independent financial advisors they trust for more than 25 years. Over that period, we’ve had a steady flow of significant conversations through a wide range of market conditions. As you would expect, for both advisors and investors, significant downturns bring not only measures of concern and anxiety as conditions deteriorate and assets evaporate, but also uncertainty in the face of volatility.

 

For advisors, time is frequently the key resource in circumstances like this, and the most common response is to reallocate the time spent on practice tasks. However, these changes are not uniform, as some advisors prioritize things like managing their practices or realigning portfolios, while others invest greater time in client communications. Where advisors are making these changes, we frequently hear doubt about what tasks they should prioritize, as well as uncertainty as to whether there is even a right answer in the face of the volatility we are seeing right now.

 

To help provide some guidance, here is a list of top priorities for advisors, based on some of our past and present research. For most advisors, this list will feel pretty familiar and intuitive. Others will need to adapt it to their specific practice and client needs. However, we wanted to share it as a reminder of what matters most to investors in the face of uncertain times. This includes what types of conversations, motivations and nuances drive priorities, and what opportunities continue to exist during the current challenges.

 

If nothing else, it should be a good reminder that this is a people-first business – and time and effort dedicated to relationship-building will not be wasted.

1. Stay in contact with clients and be available in a personal way

The first and most basic thing is likely also the most obvious. Unfortunately, for many advisors, this is going to be a significant challenge for a few reasons:

  • Mandated physical distancing means that many will need to learn new tools, such as online meetings, or adapt to telephone.
  • Many advisors now serve much more affluent clients and have increasingly made them the focus of their practices. Unfortunately, where affluent clients get nervous or panicked, a small number can frequently take an inordinate amount of time.
  • Good communications or coherent content for emails or other mass communications can be hard to find or time-consuming to create – particularly ones that are suited to clients or relevant in such a uniquely challenging period.
  • It can be difficult and demoralizing to face concerned, scared and panicked clients on an ongoing basis – particularly if they are challenging or blaming their advisor for things that are realistically out of their control.
  • For many advisors, it will be difficult to throw additional effort into their businesses as they worry about their own health, or the long-term viability of their own business or investments.

As most advisors are no doubt aware, the fear and apprehension that many Canadians feel is real and growing. For some, this is related to job instability, while for many others it may be more related to investment or retirement concerns, or even just a general sense of uncertainty. In some cases, the fear and apprehension are situational as factors like debt and job losses combine to create significant challenges; while in other cases, the fear is more related to nerves or mindsets – clients may be doing fine financially, but news stories and word of mouth are driving increasing anxiety nonetheless.

The importance of staying connected

At the same time, our research has shown that the likelihood of switching advisors increases during negative market conditions. In some cases, this is driven by existing dissatisfaction or circumstances that are beyond the advisor’s control, and the market conditions simply act as a catalyst. However, we also frequently see investors complain that advisors are simply not connecting with them, listening to their concerns or adequately understanding their needs.

All of this underscores the need for as many meaningful conversations with as many clients as possible and as soon as possible. Investors are receiving information from a variety of sources – some credible (including competitors) and some less credible – and, in the face of this, they need to hear from qualified professionals.

Our research has repeatedly shown that where investors receive regular contact from advisors, they see three key benefits:

  • Fear and apprehension are reduced.
  • Trusting relationships are preserved and strengthened.
  • The likelihood of making serious investment mistakes are reduced.

2. Slow down the conversation and listen

Given the severity of the current downturn, many clients will simply need someone to listen to them, and talk through their fears and concerns. This may be even more true as clients practice physical distancing or quarantine themselves away from those they would normally talk to or use as a sounding board. This will be even more true for younger clients or newer investors who have not experienced a downturn of this magnitude before.

Address clients’ fears

In our research among investors, contrary to what is at times suggested by media stories about investors moving toward DIY or low-fee investing platforms, we frequently see that levels of trust between Canadians and their financial advisors remain high. Yet, during market events like the current downturn, the likelihood that clients will become fearful and even switch advisors increases. At the same time, we frequently hear discussion on listening skills from investors. Complaints often focus less on things like “I can’t or don’t feel able to share my concerns with my advisor,” but rather that when clients do discuss important issues, the advisor moves too quickly past the concern before the client feels properly heard and understood. As a result, we suggest that, particularly in extreme circumstances like the current COVID-19 situation, it is important to slow down, check stress levels and make sure that the client is not only able to follow along, but is also central part of the discussion. And that means listening first.

Be aware of different perspectives

Differences in outlook are also important here. In surveys conducted by Environics among investors just days before COVID-19 was declared a pandemic, and then over the weeks that followed as the situation worsened, we saw that levels of concern varied dramatically and were often strongly connected to individuals’ core values (we frequently look at the impact of social values and hope to write more on this later). The problem is that when response is driven by such closely held values, we act in ways that feel natural to us, but may also struggle to understand the perspective of others who process the situation from a fundamentally different mindset. The fact that such wide gaps in response and understanding exist will likely not be a surprise to anyone who is currently following social media conversations on the topic. In the time since this research was conducted, we have seen fear and anxiety increase rapidly as job losses, concern over the economy and shrinking savings bring the issue closer to home and further intensify differences and gaps in understanding.

For advisors, this means that, in the face of the fear and stress that investors are feeling right now, there is a significant need to put aside their own assumptions, practice concerns and investment concerns, and take the time to listen carefully and understand client perspectives, fears and needs before weighing in. And, to be clear, this is no easy task in the face of current market conditions. Nonetheless, it is a necessary step for helping clients through significant market volatility.

3. Focus on the plan

Advisors should be ready to provide a solid assessment of what has changed, and how it can and should impact the client’s financial plan.

At times, we hear that advisors resist making changes in response to challenging financial times. While the justification for this can be entirely reasonable – for example, a desire to stick to the plan in the face of turbulence, a sense that changes driven by fear will be negative or a desire to have clients retain assets – there may be good reasons to reopen or restart the process with clients. Despite some reluctance, we would argue (and most advisors agree) that now is likely a very good time to revisit the plan.

Examine material changes your client is facing

The first, and most obvious reason to look at making changes is that things are materially shifting for many Canadians. Job losses are mounting, adult kids are moving home, elderly parents are seeing retirement funds diminish, and income streams like rents or small businesses are rapidly drying up. As this impacts clients, advisors have an opportunity to help in tangible ways as clients consider how to best use their savings as a cushion, deal with expenses and manage debt. The good news here is that, in many cases, even where critical events like job loss impact clients, they will typically get through it in the long term – and help or useful guidance from an advisor can make a significant difference. We have seen many cases where additional assistance offered by advisors in difficult situations led to stronger and more trusting long-term advisor-client relationships as the client recovered.

Recognize evolving risk tolerance

The second reason to look at revisiting plans is the one that advisors tend to be a bit more apprehensive about: clients’ changing or evolving risk tolerance. The reality here is that, after an 11-year bull run, many Canadians have not seen a significant downturn like this since they started to invest. As a result, many are unfamiliar with the emotional responses that can be associated with a major downturn. While advisors should certainly caution clients about knee-jerk reactions, responding in panic or doing something that would negatively impact them during a potential recovery, we would argue that the changes are real and it may be absolutely appropriate to update plans here. In most cases, the value of an up-to-date personal plan in reassuring clients is worth the risk that clients might overreact. We would also expect that changes to risk tolerance, and the corresponding investment results following a detailed and appropriate conversation with an advisor, will also be relatively modest.

Finally, advisors may want to review or revisit plans simply to be proactive in giving clients a sense of well-being. Not surprisingly, we frequently see that having a thorough, well-constructed financial plan goes a long way in helping investors to:

  • Have confidence in their overall financial future.
  • Maintain that confidence in the face of financial downturns.
  • Believe that they are well-positioned to weather financial hardships.
  • Improve their overall sense of well-being.

Where clients express fear or talk about making negative changes to their investment portfolios, discussing a plan can be a much more effective way to put changes into context and help investors stay invested. It can also be an effective way to refocus attention on where it should be – on the big picture instead of speculative decisions, picking stocks or timing markets – activities that will likely only add to negative emotions, stress and poor outcomes.

4. Be the rock

Over recent years, we have seen increasing discussion about low-fee investing, robo-advice or the value that advisors bring to investors. Despite this, investors who work with advisors frequently point to the comfort of knowing that there is a real person who knows them, understands their needs and is paying attention when things change. They frequently speak of the peace of mind that an advisor brings, as well as the importance of being able talk to someone when they have concerns or questions. Most critically, investors frequently agree that they are willing to pay a premium for this peace of mind.

Key messages to deliver

From an advisor’s perspective, it can be hard to see this with some clients during a downturn. Wanting care, attention and comfort does not mean that clients will not question their advisor, get upset or try to challenge the advisor’s resolve. It does mean that even the most tenured clients, the ones advisors have spent the most time working with and educating, may still need to hear some key messages, including:

  • As your advisor, I understand your needs.
  • I’m willing to talk about your evolving financial situation and your fears.
  • We’re in this together.
  • I know what I’m talking about, and have context and information that can help to guide us.
  • We have a strong plan that took a potential downturn like this into account.
  • We can modify it when necessary or where your situation changes.

The bottom line is that advisors need to remember that, while they build and provide value to clients, in many cases – and to many clients – advisors are the value. As top advisors know, this has some real implications for how they choose to support and work with clients.

5. Don’t neglect prospecting opportunities

The argument often made here is that current relationships should take priority. However, there is a very good argument to be made for maintaining some deliberate prospecting efforts, including:

  • Most advisors will lose at least some clients in a downturn – where relationships are newer, less developed or have not yet developed strong levels of trust – and will need to replace these clients.
  • Clients who do not receive adequate care and attention from existing advisors may either switch or look for a second opinion.
  • Many who are using robo-advice, DIY or other low-service channels are likely to think better of their approach when they see significant losses.

Prospecting priorities

While advisors should certainly prioritize existing client relationships, they should absolutely allocate some time to simple prospecting efforts. In particular, they should prioritize tasks that require low effort, are already on their radar or likely to yield the strongest returns. These may include:

  • Continuing to ask for referrals: for example, ending conversations with a question about “Did going through the process of reviewing your plan make you feel better about what we are going through?” And, if so, “You know that I always appreciate referrals. Let me know if you have any other friends or family members who are worried and could benefit from some planning or advice right now.”
  • Using online methods such as social media to reach a broader audience.
  • Demonstrating thought leadership by sharing articles or thought pieces that relate to their practice.
  • Communicating what is different or unique about their practice and why it matters right now.
  • Leverage community, philanthropic or social connections to continue to raise their profile within their community.

Personal relationships are always key

In difficult times, many advisors are facing considerable uncertainty, time constraints, business challenges and other difficulties. However, from previous downturns, we have learned that at its heart, the advisor model is one of strong, supportive personal relationships. Looking forward, it seems clear that advisors who continue to put clients first will continue to find opportunities for practice growth during the current exceptional market volatility.

Have comments on this article? Other things you’d like us to write about? Drop us a line at: financialresearch@environics.ca

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