After the market correction in early February, digital-first firms across the spectrum were challenged on how they would operate in volatility.
For web-based investment research platform YCharts, it was an opportunity to make inroads with advisors seeking to add more services to their practice. "When the markets go down, people start to wonder why they’re paying for disappointing results," says YCharts CEO Sean Brown.
The firm recently extended its partnership with Dynasty Financial Partners to offer their research tools on Dynasty’s advisor dashboard. The deals gives YCharts continued access to Dynasty’s 450-advisor platform. Along with access to YCharts, the Dynasty technology stack also offers its advisors other research tools, rebalancing and operational support.
Brown recently spoke to Financial Planning about the market correction and what advisors can do to shore up portfolios in times of increased volatility.
What’s the most interesting development after the recent correction?
The interesting thing from my perspective will be fees. Clients started questioning fees a couple years ago — why pay 1.25% of assets under management, or more? When the market is going up that question is not as poignant, but when the markets go down people start to wonder why they’re paying for disappointing results. Advisors are realizing that they better have their arms around investment styles in downside scenarios. When things get a little shaky, advisors have to put themselves in their clients shoes, and show them the value they’re providing.
From a client perspective, what are some of the questions they’re asking about the downturn?
Obviously, clients are asking is this the big one or what? And, advisors realized there was a lot going on, and maybe they don’t know what they need to know about downside scenarios. Remind clients that financial planning is about structuring a portfolio with a full understanding that the market doesn’t always rise. Some clients are saying, ‘I was happy to hear that we're in it for the long haul during the upside, but now I feel a little shaky.’ Hopefully people who are managing others wealth are thinking about the long-term goals. If clients want to take some of their gains off the table, advisors should know how to do that without huge capital gains tax burdens.”
What do you think about continued volatility?
As a person with a nest egg, I immediately thought that this is a sign that the inevitable market downturn is here, or coming. But, as a leader of a company that helps wealth advisors make smart investment decisions, I thought that it’s a very interesting time. When the tides are high all ships rise, and many advisors didn’t need to differentiate investment scenarios. They just indexed and rode a nice wave. Now, with all the volatility and the potential for downside risk more tangible for people, our phones are ringing off the hook.
What do you recommend advisors do in a market downturn?
We provide the data tools — the picks and the axes — not where to dig the holes. But, people should make sure they’re diversified. Some portfolios can get unbalanced by clients wanting to participate in sexy high-performing funds, or if advisors are not rebalancing sufficiently. When they get out of whack, you could find out you’re not well prepared when the inevitable comes calling.
Tell us about YCharts and the extended partnership.
“We’re not a new kid on the block, but we still like to look at ourselves as a startup. Our purpose for being is to enable investors to make smarter investment decisions. You can probably liken us to an investment research Swiss army knife. If you need to rebalance a client’s portfolio — for whatever red flag popped up and things are out of balance — there are tools to narrow some 20,000 securities down to five or 10. We have tools for deep dives, as well.”
