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How Advisors are Handling the Challenge of COVID-19

By Bernice Napach

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The long-held adage that communication is key is proving to be the single most defining  description of how financial advisors are responding to the COVID-19 pandemic.

According to a new research report from Practical Perspectives, 78% of more than 525 advisors surveyed in early April proactively reached out to most of their clients during this historic time. RIAs were the most proactive, with more than 50% of those surveyed contacting all the clients they serve. 

Close to 80% of advisors surveyed were either independent broker-dealers (42%) or RIAs (36%), and the remainder worked at full-service brokerages. More than three-quarters had 15 years or more experience. The vast majority were either solo practitioners (50%) or small teams (43%), and two-thirds were 50 or older.

The telephone was the dominant means of advisor-to-client communication, used by 93% of advisors, followed by emails (84%) and virtual meetings (48%). Far fewer (30%) reported reaching out to clients via content posting on social media and information sharing through their websites.

Most advisors reported that social distancing and other restrictions had little impact on their ability to serve clients. That is important because close to 85% of advisors reported their clients were moderately or very concerned about their investments.

Despite those concerns, most advisors (83%) report having made no more than minor changes to the portfolios they manage. Only one in eight advisors reported having made moderate changes.

The most significant change cited by about half the advisors surveyed was an increase in cash allocations. Close to 40% increased portfolio exposures to less aggressive equities, while one-third reduced equity allocations.

About 20% of advisors surveyed increased the use of investments designed to protect principal or guarantee income, such as CDs and annuities, and boosted clients’ fixed income allocations. About 15% reduced the duration of bond holdings or reduced exposure to long-term bonds.

Close to half of advisors surveyed expect that by early October stock markets will be higher than they were at the end of March but still negative year to date. Just 10% expect stocks will be higher than they were at the end of Q1 and positive year to date. 

Given advisors’ dominant outlook for the stock market, it’s not surprising that most advisors expect a decline in overall revenues and profitability due to the impact of the COVID-19 pandemic. If their assets under management are declining in value, so will their revenues collect a percentage of those assets.

Still, most advisors are confident they can meet the needs of current clients and retain them in the next six months. About 90% foresee no impact or a positive impact on their ability to serve clients and retain them. Eighty percent expect no impact or a positive impact on growth in the number of new clients.

Advisors could, however, use help in addressing the impact of COVID-19 on their clients and their practice. Thirty-seven percent of those surveyed said they would welcome help with new rules or opportunities related to new support programs from federal or state governments, such as the Coronavirus Relief, Aid and Economic Stability (CARES) Act. Thirty-two percent say they could use help with investment or economic topics, such as historical insights on bear markets and pandemics and behavioral finance insights.

Asset managers, general financial media and third-party content are the top key support sources for advisors addressing market volatility with their clients, according to the Practical Perspectives survey.

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Bernice Napach

@Think_Napach