Investor challenges? They're advisors' opportunity to help
Nationwide’s survey of advisors, financial professionals and individual investors revealed several challenges and opportunities.
What used to be considered once-in-a-lifetime financial crises now are happening more frequently. The COVID-19 pandemic is just the latest reminder of the importance of guided advice and comprehensive financial planning for investors.
“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.
Nationwide’s survey of nearly 2,500 advisors, financial professionals and individual investors revealed several challenges facing investors and opportunities for advisors to help.
85 percent of investors are 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 had the most profound impact on their approach to finances and investments. Yet it also is clear that financial pressures from the pandemic are not over yet. Although investors with an optimistic financial outlook increased 13 points from last year, this still is down from previous years. More than two-thirds of investors expect to live through more financial crises.
Nine in 10 investors who have an advisor or financial professional say that working with them helps them feel more confident that they can make the right investment decisions, even during an extreme financial crisis.
Financial professionals regain their footing faster. Advisors and financial professionals with an optimistic financial outlook not only increased 25 points over last year but their level of optimism is equal to or greater than four of the past five years. But although advisors and financial professionals are much more positive about the year ahead, they remain clear-eyed about the challenges, with 77 percent still concerned about a U.S. bear market over the next 12 months, 79 percent anticipating that market volatility will increase and 76 percent concerned about a U.S. economic recession.
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 establishing and following a budget (22 percent), starting to work with an advisor or financial professional (21 percent) and starting a rainy day fund and/or emergency fund (21 percent).
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 percent), listen to their needs and concerns (43 percent), focus on holistic financial planning (38 percent) and identify buying opportunities (36 percent).
But despite the fact that 91 percent of investors who work with an advisor or financial professional say this helps them feel more confident they can make the right investment decisions, only 63 percent of investors currently are working with one.
Closing the preparation gap to help protect assets. Although 93 percent of advisors and financial professionals have a strategy in place to protect their clients’ assets against market risk, only 66 percent of investors have a strategy — an almost 30-point preparation gap. Although advisors and financial professionals (55 percent) and investors (49 percent) say they are most likely to rely on diversification to manage market risk, findings also reveal that investors have a shortfall, and financial professionals have an opportunity for educating clients.
Protecting retirement against future crises. Eighty-seven percent of advisors and financial professionals and 82 percent of investors have a strategy to generate guaranteed income in retirement. Yet 92 percent of financial professionals, compared to just 74 percent 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.
“Last year was a powerful reminder that the unexpected can shock the system, redefine our lives and our finances, and have an outsized impact on everything from portfolios and retirement plans to investors’ psyches and their advisors’ practices,” Hawley said.
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