Dealing with clients' emotional reactions to moves in financial markets represents the biggest challenge faced by U.S. financial advisers, according to a new survey by Natixis Global Asset Management
The top three obstacles the 300 advisors, consultants and decision makers surveyed in the U.S. say they encounter are the emotional reactions, 90 percent; managing investor behavior and confidence, 88 percent; and persuading clients to stick with their financial plans, 84 percent.
"When investors make emotional decisions, they decrease the odds of reaching their financial goals," said John Hailer, CEO of Natixis for the Americas and Asia.
"Financial advisers cannot control the markets, but they can head off adverse reactions by creating portfolios designed to stand up in a variety of market conditions. Just as important, they can work with clients to agree on what to do before market-changing events occur."
Meanwhile, 84 percent of advisers expressed concern about the impact of rising interest rates and inflation on their clients' portfolios. A total of 57 percent say they will change investment strategies if rates increase or the stock market dropped severely (53 percent).
Advisors seem to have embraced the principles of goals-based investing, as 91 percent say their clients' investment portfolios are based on personal objectives rather than on a particular index or benchmark.
In addition, 84 percent believe investors think more about missing their investment objectives than about falling short of a benchmark.
A majority (54 percent) say their clients question traditional buy-and-hold investing strategies, though less so in the past two years.
The Wall Street Journal's Erin McCarthy
offers several investment tips to deal with the possibility of an early Fed rate hike and geopolitical turmoil.
- Bonds. "When it comes to safe-haven investments, high-quality, shorter-term bonds, including U.S. government bonds and corporate debt, top many investors' lists," McCarthy writes.
- Cash and gold. With a safe cash investment, inflation is your only risk. And gold often thrives in times of inflation.
- Currencies. Some currencies act as safe havens in times of turmoil, especially the dollar and the Swiss franc.
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