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January 10, 2019 at 04:48 PM
(Photo: Thinkstock)
In explaining the conflicting findings of a recent survey of advisors and investors who have—and don’t have—advisors, John Diehl of Hartford Funds didn’t hesitate to address the elephant in the room: Are we in the early stages of a significant market pullback? Should advisors merely send palliative messages to clients on how markets can go up or down, if they communicate at all with their clients?
“Now is the time to take advantage” of all the publicity around the year-end, year-start market volatility, Diehl said, for advisors to talk to their clients about the prospects of a bear market and how client portfolios have been built to ameliorate market drawdowns.
The senior VP of Strategic Markets for Hartford Funds said in an interview that one of the most interesting survey findings was that while 89% of advisors reported they had discussed bear market preparations with their clients, less than half (43%) of advisor clients said they had done so. The Hartford consumer survey was conducted online with 1,005 adults, while its survey of 121 advisors was conducted in person during October 2018.
(Related: 5 ‘Weapons of Mass Attraction’ to Help You Gain More Clients)
“It’s a classic example of advisors not being on the same page as their clients,” Diehl said. While he doesn’t doubt that advisors did have that bear market conversation with their clients, the data shows that the client “never heard it!”
That’s a reminder that advisors “always have to be in tune with what’s on the client’s radar,” Diehl suggests. Sometimes (like now) that radar might include the behavior of the markets and how their portfolios are affected by the markets.
“It’s not their fault” that clients didn’t recall the bear market conversation they had with their advisors, considering “all the distractions clients have,” Diehl says.
But it is the responsibility of advisors, he says, to initiate conversations with clients that address the concerns they have at that very moment. Is that too short-term a focus for a conversation with clients? Maybe, but advisors need to “address what’s bothering clients today,” Diehl argued. They can then turn that short-term focus into a longer-term planning conversation.
Another survey finding that should cause concern among advisors is that while 70% of Americans can’t correctly define a bear market, that’s also the case for 56% of investors who do have an advisor. Diehl suggests this troubling finding also presents an opportunity for advisors, who can focus more on educating clients to help them be prepared for market volatility (and stay invested).
It also allows advisors to show the value they provide clients by discussing why their portfolios include investments, like fixed income, that can soften the impact of a stock market downturn. That value might be particularly obvious for advisors who still practice active management, unlike robo-advisor portfolios.
