Unlocking Real Value Blog

Investors Are Worried – What Should Advisors Do?

Many individual investors, still spooked by the 2008 financial crisis, have remained out of equities, and have missed most or all of the rebound. With many indices at or near multi-year and/or all time highs, it’s even harder to get these investors back into the markets now, as they fear a correction.

A new study released by Hearts and Wallets confirms the fear among individual investors. There is little appetite for risk-taking in general, and 41% of the 5,400 households surveyed say that they are “inexperienced” when it comes to investing. This number is up more than 50% in just one year. The results were consistent across all ages and lifestyles. Only 25% of respondents said that they were comfortable accepting investment risk in order to achieve higher returns.

As an advisor, what do these results mean? Well, I need to tell you one more thing to complete the story – along with this reluctance to take risks among investors is a continuing lack of trust in financial services firms. The authors of the study, who have been tracking this trust issue for a number of years, have identified three unmet needs. Investors want answers to the following questions:

  • What do you do?
  • How do you get paid?
  • How do I evaluate you?

It’s all about developing the relationship and earning the prospective clients trust first. Part of this process includes educating them on the markets, which will hopefully help them to overcome their fears of investing over time. Once they understand concepts such as diversification and asset allocation they should be more willing to dip their toes back into the markets.

Ultimately, they need to feel comfortable with you, view that you are in it for the long-term and trust that you have their best interests in mind. The consultative sales process does this – but it takes time and multiple meetings. And patience on your part.

Additionally, a large part of developing this relationship is taking the time to learn about the prospect and their family on a personal level – what they like to do, what their values and dreams are, etc. This is part of building a relationship and being seen as being on their side, as opposed to being seen as a product pusher. Unfortunately, there is no quick easy solution; but no one ever said this business was easy!

(As an aside, since the distrust seems to be leveled at firms as much as advisors, those of you with your own firms or who work for smaller lesser-known firms have a leg up. If you work an as advisor for a larger firm, especially one that has received bad press, you need to work extra hard to separate the value that you add from that of the company; the prospect needs to feel comfortable that the firm will not get in your way.)

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