In 2022, as market volatility raged and inflation became the number one worry of Americans, investors’ views of the economy drastically worsened. Despite that, affluent investors have maintained a positive outlook on financial services firms — providing an opportunity for advisors, according to a new report.
The report, produced by Cerulli Associates, a wealth and asset management research and consulting firm, was based on a survey of more than 12,000 households with a minimum of $250,000 in investable assets or a household income of more than $125,000. It found that the majority of investors remained pessimistic throughout 2022. Investors felt most pessimistic in July and October: During each month, 65 percent of investors stated they felt pessimistic about the economic outlook over the next three months. During this time, investor confidence was falling as concerns about inflation grew.
Yet investors reported high levels of trust in their advisors. Of the respondents, 61 percent said that they believed financial services firms put their best interests first, with this belief held most strongly by clients of bank advisors (75 percent), private banks (73 percent), and independent advisors (72 percent).
During times of economic uncertainty, advisors should reinforce the value of long-term strategic portfolio investment, according to Cerulli. The company said investors’ economic pessimism will often cause them to make rash investment decisions that may financially harm them in the long run.
In 2022, just 25 percent of survey respondents reported having taken no action with their finances during the previous three months. Conversely, 44 percent of affluent respondents reported that they had actively reconsidered their overall portfolio plans, led by clients of private banks (61 percent) and full-service brokerages (52 percent).
“Evolving circumstances and increasing apprehension can drive clients toward making portfolio changes that ultimately hinder progress toward their financial goals,” Scott Smith, Cerulli director, said in a statement.
Investors’ satisfaction with advisors fell in 2022, according to a J.D. Power survey published in April. J.D. Power concluded that investor satisfaction has become inherently tied to overall market performance, suggesting that advisors are failing to prove their worth to their clients.
Cerulli argued that in times of economic distress, advisors have an opportunity to sway clients away from poor financial decisions.
“To counter these tendencies, providers should encourage their advisors to consistently position market volatility as an exploitable expectation rather than a conquerable enemy,” said Smith.
Communication is key.
“No matter how confident and informed a client may be, these circumstances require escalating levels of communication and reassurance,” Cerulli said in the report. “Advisors should identify ‘chokepoints’ early on and provide clients information and hands-on services.”
About 20 percent of affluent investors identified as “advice-seekers,” said Cerulli. “These investors are interested in additional financial relationships and recognize the value of expert advice and are willing to pay for it.”
The company also believes that technology, like artificial intelligence, can and should play a role in building trust and alignment. “Clients are craving the feeling that their financial advisor really understands them, and technology will enable advisors to better meet this standard,” Cerulli said.