Market Downturns: Generational Differences in Client Conversations

Investment management often requires that financial advisors address sensitive topics with their clients, but the stakes can be high in periods of market volatility. Client anxiety may escalate, sometimes leading to rash decisions.

Many factors can contribute to how an investor responds to negative performance in their portfolio and the uncertainty of volatility—everything from age, goals, time horizon, risk tolerance, career path, liquidity, temperament, family situation to health, and more. Financial advisors must carefully consider their communication approach since client reactions can differ dramatically from person to person.

With client relationships at the core of interactions between a client and an advisor, many advisors see and connect with people, going beyond the bottom line. They consider the aspirations, struggles, values, and vision that complete the client’s story and particularly the concerns that arise with investing in volatile markets.

Other financial advisors find new market volatility opportunities can be even higher than during bull markets—when past performance may lead individual investors to feel more confident in their investment strategies and less worried about future performance.

Now with fluctuations in financial markets and the economy, investors are concerned about how to handle rising interest rates, stock market volatility and inflation, and possibly recession as well. Financial services may now be in greater demand as worries drive individuals to seek investment advice.

It would be impossible to account for all elements here, so let’s look at a few broad demographic categories in hopes they can help guide your conversations going forward.

Mid-Career Clients/Millennials. Focus: Risk and Long-Term Growth

What do Millennials want from financial advisors? Millennials are looking to financial advisors for help with investment decisions, particularly help to navigate market volatility, and are also focused on risk and long-term growth.

According to a recent global study by Natixis, 72% of Millennials would take safety over investment performance. While 26% focused on a portfolio’s ability to beat the benchmarks, 48% said they were focused on risk management. This same survey found that 40% of those surveyed said help with navigating volatility was an important part of their advisory relationship.

When volatility strikes, it’s a great time to circle back to the “risk” conversation and see if their position has evolved. Revisit their short, intermediate- and long-term goals, discuss how their diversified portfolios have positioned them for long-term success through varied market cycles, and remind them that short-term declines should not impact their long-term goals.

Young investor expectations are changing. As Millennials age (and have more to lose when it comes to investments), it’s important to understand that risk is now an important consideration for this demographic. So, don’t shy away from the conversation around risk.

Pre-Retirement Clients. Focus: When to Retire and Resources

For clients who are hoping to retire within the next fifteen years, two concerns frequently emerge when markets downturn: “When can I retire?” and “Will I have the resources I need?”

The five to 10 years leading up to retirement can be fraught with anxiety, even if the markets are doing well, and must be planned for skillfully in order to improve long-term outcomes. A study published last year by Edward Jones shows that healthcare and long-term care costs are the single largest concern of pre-retirees, a worry unrelated to market performance.

With such a short runway to retirement, decision-making can be stressful—this demographic has a lot to consider when the markets do take a downturn. Market volatility is your opportunity to talk them through their options, help them put their situation in perspective, and make adjustments if needed, while there is still time:

• When can I retire? Is retiring later an option?
  While not a trend, many pre-retirees are pushing back their retirement date. One out of three Americans planning to retire think they will now retire later due to the pandemic market volatility. Additionally, in a recent study by the Federal Reserve, 25 percent of adults who retired in the prior 12 months, and 15 percent of those who retired one to two years ago, said factors related to COVID-19 contributed to when they retired.
• What is my Social Security income distribution plan?
  Review their Retirement Income analysis. Take advantage of resources available on the Social Security website, including the benefits “break-even” calculator.
• How much debt am I holding…and what cash is on hand?
  Before liquidating securities for immediate cash needs, consider securities-based lines of credit (SBLOC) to help get through tough times without losing investments that are part of a larger long-term retirement plan.
• What other sources of income can be made available?
  Review allocations to dividend-paying stocks and consider bulking up that asset allocation if that makes sense. Investigate other income-producing options, such as corporate bonds.
• How can tax payments be reduced?
  If your pre-retiree clients are concerned about taxes, review muni bonds as an income source. Alternatively, take advantage of market losses and look at opportunities for tax-loss harvesting.

Don’t forget. It’s not all about the money: Yes, shifting from an accumulation mindset to a distribution or protection one is important. Transitioning to a retirement lifestyle can be jarring as well. Offer your expertise and experience to help these clients ease into retirement and get the most out of “Life 2.0.”

Retired Clients. Focus: Income and Well-being

Senior clients may have the least exposure to the stock market and the shortest investment time horizon. Calm assurance is key to serving this segment effectively. They share many of the concerns of pre-retirees, but these clients have already left the workforce and don’t have the same opportunities to find alternative income sources, re-set their portfolios, or recover as investors with longer time horizons. Sequence-of-returns risk and having a solid distribution strategy could significantly reduce portfolio longevity is a key consideration for retirees.

Plus, this demographic has non-investment-related issues that weigh on their minds. Many retirees struggle with the adjustment to retired life: more than a quarter (27%) of retirees surveyed say they have struggled with the transition from work to retirement. Your check-in with these clients will look different from that of your other clients. Assessing their well-being requires you to cast a wider net and delve a little deeper to check on them emotionally as well as financially.

What do the client’s cash reserves look like? Perhaps conduct a cash flow analysis. If there’s a need, revisit and look at expenses. Discuss an income bucket strategy that separates investments into three time horizons: short, intermediate, and long-term.

Is debt an issue? Discuss borrowing options including securities-based lending. If taxes are a burden, review various tax-aware investment options. Is it time for an RMD discussion? Does the client have an estate plan, healthcare proxy, and living will in place? Perhaps other meetings are in order. Take the opportunity to engage the client’s family, as well as other professionals—CPA, tax attorney, and estate planning specialist— so you can coordinate a comprehensive plan.

High-Net-Worth Clients. Focus: Financial/Estate Planning and Tax Management

Many high-net-worth (HNW) and ultra-high-net-worth clients are sophisticated investors that may not be coming to you with questions on the fundamentals but about the different asset classes and allocation, emerging markets, or fixed income. That doesn’t mean they shouldn’t hear from you in times of volatility. Quite the opposite, they have complex investment portfolios and higher service expectations. When you reach out, review their overall financial plan, with a focus on an optimal tax management approach that will make the most of losses.

Review the client’s estate/legacy plans including beneficiaries, and introduce values-based investing into their holdings. Engage other family members in family wealth planning. Market volatility offers you an opportunity to set up a family meeting to discuss the economy and markets, as well as the family’s financial situation. This introduces you to the next generation and establishes you as an advisor for the whole family, not just your client.

Are You Equipped to Address the Needs of Your Diverse Client Base?

Are you working with a partner that delivers the support you need to run your business and serve clients effectively, including curated investment options, client engagement materials, cash management resources, practice management support, innovative digital platforms, and customized sales support?

Your clients rely on you to help them navigate an unsettled financial environment. Whom do you rely on? How do you go beyond supporting your clients to actually strengthening your relationships and growing your practice in the midst of uncertainty? You do it with the help of AssetMark.

To learn more about the AssetMark advantage, including how AssetMark can help you navigate the challenges associated with market volatility, download our market volatility guide.