Client Conversations Are Ripe for Change, Schwab Study Suggests

The Covid-19 pandemic has significantly changed what is important to investors. Wealth managers should think about what that means for client relationships.

(Giulia Marchi/Bloomberg)

(Giulia Marchi/Bloomberg)

Americans cared about the same things before Covid-19. But more than a year into the pandemic, they have reprioritized what is important to them and wealth managers should acknowledge that.

Half of investors are optimistic about the U.S. economy, and they intend to go back to living and spending the way they did before the pandemic, according to the Charles Schwab Modern Wealth Survey 2021. The other half have different plans. Twenty-four percent expect to splurge and make up for lost opportunities to travel, dine out, and do other things limited throughout the past year. Meanwhile, 29% want to “live a quieter life and save more money.”

In 2020, 64% of respondents considered themselves “savers” rather than spenders, but 80% said they plan to be savers this year, the survey found.

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Plans might have changed because the majority of Americans (68%) have reconsidered what is important to them. Mental health is more important to 69% of Americans than it was before the pandemic, as well as relationships (59%) and financial health (54%).

“The past year has of course caused Americans to focus on their health, in particular their mental health, along with the health of their relationships. But the pandemic and the significant impact it had on the economy and stock market also taught us a valuable, and in many cases difficult, lesson about the importance of financial health and preparedness, including the importance of having a plan and emergency savings,” Rob Williams, vice president of financial planning at Charles Schwab, said about the report.

More than half of Americans were financially impacted by the pandemic, meaning they took a pay cut, were furloughed or laid off, or were negatively impacted in some way, according to the survey. If they face those hardships again, they want to be better prepared.

Therein lies an opportunity for wealth managers.

Investors say they intend to save and invest to help them prepare for emergencies, fund their retirement, and increase their income, but most have not formalized a strategy to do those things. Just 33% of investors have any financial goals in writing, Schwab found.

Getting a financial plan into writing is critically important to its success. Investors without a formalized plan underperform those who do and feel significantly worse about their financial future. Schwab found 87% of investors with a plan regularly rebalance their portfolios, compared to 63% of non-planners; 80% consider their risk tolerance when investing, compared to 51%; and 65% feel financially secure, compared to 40%.

Investors with a written plan are also far more likely to have an emergency fund to cover three months’ worth of expenses (65% compared to 33% of those without a plan).

Reasons investors gave for not having a plan were mixed. Forty-two percent believe they don’t have enough money to justify having a plan, 22% said it seems too complicated to create one, and 19% said they don’t have time to develop one.

Those reasons are also misguided. Everyone should strive to have an emergency fund, no matter their income or wealth. Wealth managers should explain that to prospective clients and make planning as simple and speedy as possible. With a plan in place, a person without much to invest today could become a lucrative client with much to invest years later.

Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.

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