How advisors—and their clients—successfully navigated 2020
How advisors—and their clients—successfully navigated 2020
We applaud the diligence of financial advisors—and their clients—during the very challenging times of 2020. Their collective commitment to finding new ways of working together, reinforcing strong advisor-client relationships, and seeking customized financial solutions was exceptional.
With 2020 behind us, but the pandemic still far from over, we all remain thankful for the outstanding efforts of frontline medical workers, first responders, teachers, and the medical and scientific community at large.
Additionally, our thoughts go out to all who have had medical, employment, or financial issues during this crisis. Hopefully, these individuals and families will see significant improvement in their lives in 2021.
However, I want to focus in this article on two wholly different groups that I think deserve some recognition for their resilience and proactivity in 2020: financial advisors and their clients.
As editor of Proactive Advisor Magazine, I have been privileged to interview financial advisors all over the United States, from diverse backgrounds, with practices of all shapes and sizes, and affiliations with many different broker-dealers. They have shared in-depth information on their firms’ missions, client-service practices, investment philosophy, marketing, and other areas.
While it was difficult for everyone to conduct “business as usual” last year, the conversations I have had with many advisors revealed an uncommon devotion to the needs of their clients. While that is generally true no matter what the year, it was especially noteworthy in 2020. It was also gratifying to hear from advisors that the overwhelming majority of their clients were committed to working together in addressing the year’s unique challenges.
Advisors had to overcome several unusual factors last year, some readily apparent and some not so obvious.
Market volatility. U.S. financial markets had one of the fastest bear market declines in history, followed by one of the most impressive recoveries on record (in the face of multiple headwinds).
Figure 1 shows the time frame in which the market dropped more than 34% in 2020, doing so in just 22 days. In comparison, the mortgage crisis and market crash of 2007–2009 played out over an 18-month period, bottoming with a loss of 57% for the S&P 500. The dot-com market crash of 2000–2002 lasted more than two years, with a maximum decline of 49% for the S&P 500.
For further perspective, according to analysis from Ally Invest, during the 10-year period from 2010 to 2019, the stock market moved up or down by 3% or more 58 times. In 2020 alone, market moves of 3% or more occurred 45 times.
Source: Libertas Wealth Management, data through 12/8/2020
Emotional and sentiment swings. Going hand in hand with the markets, sentiment for many market participants and investors swung from “extreme fear” to “extreme greed” in unprecedented fashion. Last year was like a “real-time laboratory” for all sorts of behavioral finance issues.
CNN’s widely followed Fear & Greed Index tracks seven indicators of investor sentiment, which, unlike many other sentiment studies, incorporates several component factors based on quantitative market inputs. As shown in the following illustration, 2020 saw five major swings in this measure (though 2018 and 2019 were not exactly smooth sailing either).
Source: CNN Business, Fear & Greed Index; data as of 12/14/2020
The day-to-day challenges of the pandemic. Financial advisors have experienced what we all have: concern for elderly relatives, children at home attending school remotely, disrupted plans across many fronts, and (unfortunately for some) health issues—COVID-related or otherwise.
New ways of working and communicating with clients. In the middle of market, economic, and health-care challenges, advisors had to swiftly adapt to largely using remote communications with clients. This was true for financial firms of all kinds and the transition was generally impressive. But I think this successful adaptation was especially critical for financial advisors, who are tasked with the very personal and customized client discovery process, in which they learn about their clients’ specific financial situations, financial objectives, risk profiles, and future aspirations and dreams. This process is particularly crucial for new clients.
Some advisors were well-prepared for the transition, having worked remotely for years with out-of-state and overseas clients. Others have said the transition required fairly intensive staff training, clear and timely communications with clients, and new technology investments.
Increased demand for a variety of financial services. While changing their practice model, many financial advisors have also seen increased demand from existing and new clients for in-depth financial planning—especially concerning areas such as estate planning, life insurance, disability, long-term-care products, and risk management in general. By all reports, advisors have stepped up to the challenge. This has not always been a pleasant or routine task, with some clients facing job loss, severe budgetary problems, the death of a loved one, or threats to their business.
Advisors have also told me they have gone “above and beyond” in small but significant ways: driving clients to appointments if needed, devoting time to helping clients become more comfortable with new technologies, calling personally on homebound older clients, assisting clients with eldercare arrangements, or reaching out to clients suffering an illness.
Advisor Linda Persechino, located in New Hartford, Connecticut, says she has always made this type of outreach a part of her practice:
This brings us to the other party deserving some praise—the investor clients of financial advisors.
A client or client family can be found on the flip side of just about every point mentioned above. They, too, faced life’s daily challenges in 2020 with fortitude, adapting to their new work, school, and home environments. They have been willing and active participants in new ways of partnering with their financial advisors. Clients are also to be commended for wanting to “make sure their financial houses are in top order during a period of great uncertainty,” as one advisor told me.
Advisor Ken Lubkowski, whose practice is based in Seattle, Washington, says,
What is particularly impressive is that advisors say their financial and investment educational efforts paid off in real time last year. Few advisors say they received phone calls or emails expressing any panic or distress over plummeting markets in February or March. That is a tribute not only to the advisor-client relationships that have been developed but also to the well-constructed financial plans, well-diversified investment allocations, and (for most advisors I have spoken with) a bias toward risk-managed investment strategies.
These factors have been supplemented by robust communications programs implemented by advisors, which were especially prevalent during the market decline. It is interesting that several advisors have said that their clients were voicing less concern during the first-quarter market plunge than they are now with an equity market that has defied belief (to the upside) for many. Advisor communications, as one advisor told me, continue to focus on “behavioral adherence” for clients to their investment plan, and clients are advised to try to filter out the ever-present noise from the financial press and airwaves.
Mr. Deppe expanded on this concept in comments to our publication:
Last year presented financial advisors and their clients with several challenging market scenarios.
In general, advisors have told us that they are most interested in how strategies are performing for clients, no matter what the market is doing, and if they are managing risk in the way they were structurally designed.
Richard Grant, NSSA, ChFEBC, and founder, CFO, and managing member at RFG Capital Management LLC in Gilbert, Arizona, said he was pleased with the efforts of his third-party investment managers in 2020:
With the rollout of COVID-19 vaccines over the past month, and the ongoing emphasis on health and safety measures, there is reason for optimism for 2021. While we applaud the diligence of financial advisors—and their clients—during the very challenging times of 2020, we look forward to their continued strong partnerships in the days and months to come.
David Wismer is editor of Proactive Advisor Magazine. Mr. Wismer has deep experience in the communications field and content/editorial development. He has worked across many financial-services categories, including asset management, banking, insurance, financial media, exchange-traded products, and wealth management.
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