Don’t mix politics with investing. It’s an adage that most advisors abide by, but a new survey from Hartford Funds finds that many investors take a different approach.
An online survey of 872 investors with at least $100,000 in investable assets conducted in early August found that 75% discuss politics with their financial professional and 57% believe it’s important that their advisor’s political view aligns with their own.
Forty-four percent said they would switch financial professionals if there were no such alignment.
Advisors should be prepared for clients to initiate such conversations, says John Diehl, senior vice president of applied insights at Hartford Funds who is well-known for his collaboration with the MIT Age Lab on longevity issues for investors.
Advisors “ought to anticipate what they would say” when the conversation does come up. “They should prepare as they would for any client meeting.”
Younger investors especially are looking to connect with their financial professional for insights and expertise beyond the usual financial guidance, according to Diehl.
Ninety-one percent of younger investors surveyed said that it’s very or somewhat important that they share similar political views with their advisor and 68% would consider changing their advisor if that were not the case. Those two percentages were about two-thirds less for older investors.
Handling These Issues
Advisors might respond to these “out of the box discussions” with clients by noting that it’s not their practice to allow personal preferences to get in the way of their services, says Diehl.
Or they might ask their client why they feel so strongly about a political topic or party and use that opportunity to share some of their own experiences and how they influenced themselves in a certain way.
“Understand the story behind the stance” of the investor, says Diehl. He noted that these discussions, if done correctly, “can uncover further details on what clients’ value, their investing habits and ultimately help foster a strong, effective relationship.”
Advisors could also present objective data about the behavior of financial markets during Republican and during Democratic presidencies and when one party controls the White House and both branches of Congress and when the presidency and one or both houses of Congress are controlled by different parties.
Returns Over Time
Since 1937, the S&P 500 has averaged a 13% annual return when the White House and Congress were from the same party and 14.6% when the government was divided with the president representing a different part than the House and/or Senate, according to data from Morningstar and Hartford Funds.
From 1933 to 2019, the average annual return for the S&P 500, adjusted for inflation, was 10.2% under a Democratic president and 6.9% under Republican president.
But if the boom years of Bill Clinton and bust years of the subsequent dot.com bust and global financial crisis under George W. Bush were excluded, the difference in returns under Democratic and Republican presidents “is practically zero,” according to the report. (The financial crisis continued in the early years of the Obama Administration.)
Despite that data, 93% of the investors surveyed believe the upcoming presidential election will impact the stock market and 84% expect it will affect their investing habits in one way or another. Still, less than half of the investors surveyed (45%) plan to make changes to their investments leading up to the election. After the election, however, is another story.
Sixty-two percent of investors surveyed plan to make investment changes within 12 months after the election.
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