Managing clients’ emotional reactions may be advisors’ greatest challenge in 2018, says a Natixis Investment Managers Survey released last week.
The company’s Center for Investor Insight surveyed 150 Canadian financial and investment advisors on their market challenges and found that 94 per cent of respondents believe that preventing their clients from making investment decisions based on feelings is important to success. Thirty-four per cent of the advisors surveyed say their clients have reacted emotionally to recent market movements, and less than half (43 per cent) of advisors believe that investors are prepared for a market downturn. Meanwhile, 81 per cent of advisors believe the extended period of higher markets has made investors complacent about risk.
Selling in a panic
Whether it is buying indiscriminately when markets are rising or selling in a panic when they are declining, investors often make their worst decisions when driven by their emotions,” said Abe Goenka, chief executive officer of Natixis Investment Managers Canada. “Advisors have an important role to play in all markets, helping investors to be aware of the harm emotionally driven investing can cause and assisting them in dispassionately examining their goals, risk tolerance and timeframe.”
Rising market volatility
The survey also showed that advisors see rising volatility as the biggest potential threat to the markets with 73 per cent saying it would negatively affect overall investment performance. Other threats to investment performance include asset bubbles (63 per cent of advisors); geopolitical events (57 per cent); unwinding of quantitative easing (57 per cent); interest rate increases (56 per cent); the low yield environment (55 per cent); regulation (43 per cent) and currency fluctuations (41 per cent).
Close communication with clients
“Financial advisors see a world in flux in the coming year, and their ability to serve their clients will require a unique pairing of skills,” said David Goodsell, Executive Director of Natixis Investment Managers’ Center for Investor Insight. “On one hand, they will need a firm analytical grasp of the forces driving the market in order to adjust investment strategy. On the other, they will need to understand the motivations of investors to avoid emotional decisions that could disrupt long-term plans. To be successful, advisors will need to be in close communication with their clients, and their advice will need to come from both the right side and the left side of the brain.”