Over the past year or so, I’ve been asking analysts in this industry about investor psychology. Specifically, I’ve been asking how investors are approaching the markets after the crisis. I had expected answers that noted investors being rightly worried and fearful; and maybe even a nod to the fact that it took 25 years to reach previous highs after the crash of 1929.
But for the most part, I was surprised at the bullish answers. Most were some version of the idea that investors should be looking to put money to work, especially in this great market. And things did seem to be zipping along for a good while, almost like the crisis was nothing more than another market dip. (Since the March 2009 low point, the S&P 500 has gained 86%). When I asked whether investors simply needed to ratchet down their expectations on returns, one analyst told me flat-out that that was a stupid premise.
No need to wait an entire generation for market gains this time. We had gains almost immediately.
But now there is at least one study, and one industry expert, which seems to confirm my premise. The Insured Retirement Institute commissioned a study that concluded investors have now adopted a “recovery mentality.” And while this is a shift from the fear and anger that characterized this same study last year, the overall conclusion is one of wariness on the part of investors, says IRI President Cathy Weatherford.
The crisis has had a definite, long-term impact on investors, she says. They now want to be more involved with their investments. Even more surprising, they are willing to accept lower returns if it means their money is safer, she says.
That first revelation can be a positive for advisors in a glass-is-half full sort of way. The fact that investors want to be more involved might mean an advisor’s day-to-day routine is more difficult, but at least investors are not wanting to strike out on their own. They still want help from advisors, they just want to have a more tailored portfolio, and they want to understand their investments. And most importantly, they want an advisor who really knows them; who knows who they are and what they want.
Granted, the IRI is an association for annuities. So its ultimate conclusion, no surprise, is that investors want the income and guarantees and come with annuities. But its message that FAs need to re-examine their approach to clients is certainly one that is echoed by others in the industry.
For one, Chip Roame, the managing principal of Tiburon Strategic Advisors, has interviewed financial advisors in preparation of various speeches he’s given. And some of the FA quotes he uses strike a remarkably similar chord to IRI’s conclusions. Not that investors necessarily want annuities, but that they are scarred from their experiences and want more collaboration with their advisors.
In fact, one noted that when things are bad, investors tend to stay put. But when things improve, they are more likely to move. If that holds true and clients begin to look for new advisors, there is a real-life consequence looming for the FAs who haven’t stepped up their game and begun offering what clients are now demanding.
To be sure, markets have done well over the past couple of years. So maybe is was easy to forget or ignore the pain of the six-month crisis in 2008/2009. But investors are no longer hunkering down. They are taking a hard look at their portfolios, and their advisors, and they want something new. The only question is whether you fit in with their new demands.