Managing client emotions amid market chaos now job one, say FAs

Managing client emotions amid market chaos now job one, say FAs

Managing client emotions amid market chaos now job one, say FAs

Last year was a stellar one for many investors and investment professionals, but the appearance of volatility earlier in 2018 suggests a more muted outlook. As if the turmoil in the markets wasn’t bad enough, a new survey of US financial professionals has found growing concern over clients making costly emotional investment decisions.

In a new poll, Natixis Investment Managers has found that only a few advisors believe investors are ready to return to more normal market ebbs and flows. In fact, 46% said their clients reacted emotionally to recent market movements, while 82% believed that investors have become complacent about risk because of the prolonged bull market of recent years.

While respondents had an average target of 14% growth in AUM over the next 12 months, they also acknowledged factors that could potentially dampen overall investment performance. Those include risks from geopolitical events (68%), interest-rate increases (66%) and rising volatility (57%).

Focusing on portfolio risks, responding FAs cited concerns over interest-rate hikes (59%) — which half of all respondents are bracing for by managing bond durations in client portfolios —  asset-price volatility spikes (55%), and inflation (40%). And while 74% see a potential bursting of the crypto bubble this year, a few are also forecasting bubbles in bonds (25%), real estate (24%), the tech sector (21%) and the stock market (18%).

The mounting risks in the market have driven a return to active management, with 83% of those polled favouring it. FAs who responded to Natixis’ 2016 survey said they had 66% of their assets in active strategies and would moderate it to 57% within three years; however, this year’s respondents have reported allocating 67% of their assets toward active investment approaches.

The majority of advisors (80%) also said they are recommending alternative investments, including REITs (50%), real assets (29%), commodities (28%), infrastructure (27%) and hedge fund strategies (24%). Nearly half (48%) expect an alternative strategy to prove itself within three years.

Aside from providing investment advice, survey respondents said they need to fulfil other roles and services for their clients, including:

  • Guiding clients through “emotional” decisions (88%)
  • Providing ongoing financial education (71%)
  • Providing guidance on identifying and achieving life goals (70%)
  • Help in navigating life events (66%)
  • Help with mediating family financial affairs (41%)

 

Related stories: 
The risk of failing to create time for new clients
Keeping clients on side during a downswing


More market talk: