Financial advisors should be brimming with excitement as they anticipate surging demand for their services in the next year. Client behavior checks their enthusiasm, however.
Ninety percent of advisors in a survey released Tuesday by Natixis Global Asset Management said their top challenge in the coming year was clients’ emotional reactions to market movements.
“When investors make emotional decisions, they decrease the odds of reaching their financial goals,” John Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia, said in a statement.
“Financial advisors cannot control the markets, but they can head off adverse reactions by creating portfolios designed to stand up in a variety of market conditions. Just as important, they can work with clients to agree on what to do before market-changing events occur. By doing this, they can help take the emotions out of investing.”
Natixis said these findings stood in sharp contrast to what it heard from individual investors in a separate survey conducted in May.
Few of those investors acknowledged a relationship between emotions and investment success. Only 8% answered “yes” when asked whether putting their emotions aside could better enable them to meet their financial goals.
“Managing emotions may be easier said than done,” Hailer said. “Investors may not realize the potential negative effects hasty decisions can have on their investment portfolios.”
Another 88% of advisors surveyed said managing investor behavior and confidence would be a major challenge, and 84% expected hard work in persuading clients to stick with their financial plans.
Eighty-four percent of advisors in the survey also expressed concern about the potential effect of rising interest rates and inflation on client portfolios.
If rates should increase, 57% said they would change investing strategies, and 53% would do so if the stock market should plummet.
Natixis’ 2014 research was conducted online in June with 300 financial advisors in the U.S.
Goals-Based Investing, Use of Alternatives
Ninety-one percent of advisors reported that their clients’ investment portfolios were based on personal objectives — an indication, Natixis said, that advisors had embraced the principles of goals-based investing.
According to the study, 84% of advisors agreed that their clients would be happy if they achieved their investment goals over a year even if their portfolio underperformed the market.