We didn’t realize it in January 2020, but financial advisors and clients were entering a whole new world.
After COVID-19 entered our lives, concerns for physical health were paramount. But the initial drop in the equity markets and the return to an extremely low interest rate environment precipitated an intense focus on financial health as well.
With clients starting to rethink their lives on many fronts, my colleagues and I began to reconsider our roles as wealth advisors. With this new landscape ahead of us, what will our roles be? How should they change? Post-pandemic, how can we help clients be as prepared as possible? What are the key issues they need to consider for their financial futures?
We believe there is increasing value in an advisor’s counsel, especially as the financial markets are more volatile than we’ve seen in years. Perhaps more than ever, events are affecting investors' financial well-being more quickly and from every possible direction. As advisors, our critical role is filtering out the noise and understanding the long-term ramifications of momentarily seismic events.
Working with a wealth advisor provides investors with an experienced and objective outside perspective that can cut through the day-to-day market tremors and keep clients focused on their long-term investment objectives. What’s more, in this new era, advisors can’t simply be order-takers. Multigenerational relationships start with advisors understanding clients’ stories — really listening to their objectives and engaging with them using empathetic expertise.
In December, Wilmington Trust published our annual
- What have companies done in the past few years to position themselves to thrive and be more appealing to investors?
- In a time of historically low interest rates, did they use access to cheaper sources of financing to bolster their technology? Increase their cybersecurity? Hire new leaders?
- And how can advisors help clients rethink plans given the world around them?
New beats
Much like the electrical impulses that keep our hearts beating, the U.S. government provided trillions of dollars in stimulus funds designed to sustain consumers and defibrillate the economy through the worst days of the pandemic. But now, as life seems to be settling down to a certain normality, new dislocations to key pockets of the economy — irregular beats, if you will — are creating fresh economic issues every day.
As we consider the best strategies to help clients going forward, I find myself leaning more than ever on a very simple tenet: “Be prepared.” As advisors, we cannot reiterate enough to clients the importance of having a comprehensive plan that considers all the important factors in their lives — money, careers, families, philanthropies, personal passions and “what keeps them up at night.” But even with a well-designed investment plan that reflects a family situation, unexpected world events disrupt markets and precipitate the need to reevaluate.
Two current disruptions are causing many investors to make needed adjustments in their investment strategies. The first is the geopolitical shift. The Russia-Ukraine war has caused problems in world financial markets — especially in equities, which had seen a long bull market — leading many investors to reallocate to cash and commodities. As advisors, we can help reassure clients and keep them prepared for an array of eventualities by diversifying portfolios, hedging certain risk assets, etc. But we can also help them understand that geopolitical events offer not only challenges, but opportunities. Helping them see that is key to avoiding an overreaction.
The second is inflation. Advisors need to prepare clients to navigate higher prices, higher wages and world governments’ responses to these trends. The Federal Reserve halted its monthly bond purchases in March after flooding the market with liquidity for two years and again raised rates in May.
This is expected to continue for some time, and the Fed could end up taking even more aggressive action if inflation doesn’t slow. Throughout the inevitable twists and turns the Fed will take, advisors should use their experience to help clients best position themselves by considering the impact on loans, fixed-income investments and other rate-sensitive components.
Most importantly, we need to help clients create a plan and prepare for the unexpected. Clients need advisors most when an out-of-the-blue event prompts them to ask, “What will it mean for me and my family?” “Will I ever be able to retire in comfort?” and “Can my kids still go to their dream colleges?”
During the pandemic, I noticed the acronym YOLO — you only live once — coming up in my conversations with clients with increasing frequency. They told me that they are more focused on maximizing their finances, enjoying their families and working for a purpose.
If we advisors do our jobs, we can help make that happen.
