Most advisors agree client anxiety — often caused by politics — led to poor investment decisions last year, according to new data released by Hartford Funds
Of the 218 advisors surveyed, 62% said anxiety hurt investor decision-making over the last 12 months.
“Investors and advisors witnessed significant geopolitical events in the last year, all of which can impact decision-making,” John Diehl, senior vice president of Strategic Markets for Hartford Funds, said in a press release. “Our survey clearly demonstrates that helping clients better understand their risk tolerance and how anxiety can lead to poor investment decisions is more important now than ever before.”
Measuring current concerns, politics top the list of anxieties advisors believe are currently keeping clients awake at night. However, politics are causing more worry amongst investors than advisors.
Half of investors are kept up by anxiety regarding domestic (37%) or international (14%) politics. Meanwhile, 41% of advisors are being kept awake by domestic (20%) or international politics (21%). Only 18% of investors are sleeping soundly — compared with 1 in 3 advisors (31%).
Because of this disparity, Diehl thinks advisors should be having conversations with investors to close this gap.
“Advisors typically see less reason for concern in times of political disruption because they are able to tune out the noise; they understand that there’s less of a connection between politics and market cycles,” Diehl said in a press release. “Sharing data to this effect and discussing your clients’ risk tolerance can help ease their minds, as well.”
Despite investors’ anxiety, 80% of the advisors surveyed say clients want to take advantage of the current environment by investing more dollars. Half of advisors are recommending their clients maintain risk levels in their portfolios, despite the turbulent political climate, while 33% are recommending their clients take down risk in their portfolios.
According to Diehl, there are three reasons why he believes politics are still an issue advisors should discuss with clients:
1. Presidential effect
“Now more than ever, the media overaccentuates the president’s activities/comments on a daily basis; investors are more likely to fret about politics from an emotional standpoint than a financial one,” Diehl said in an emailed statement.
Diehl said that advisors need to provide a gentle reminder of how what’s on the TV will or won’t affect an investor.
2. Policy changes
“When it comes to policy changes, many have two caps on — philosopher and investor,” Diehl said in an email statement. “Advisors may find it’s hard to get clients to switch [point of views] and prepare for policy changes that will impact their portfolio.”
3. Bull market
“We’ve been in a bull market for 8/9 years now, [and] advisors know we’re waiting for the other shoe to drop,” Diehl said in an email.
Investors, however, may be more focused on political news driving their investment decisions while the market is still good, he added.
—Related on ThinkAdvisor: