By Amie Agamata
Right now, there’s a lot of noise in the markets. We’ve experienced market all-time highs and, with that, there’s a lot of speculation that what we’ve all been enjoying may come to an end soon.
Not only are we hearing this is in the news, but our Centers of Influence contacts such as CPAs and attorneys are starting to voice their clients’ concerns with us as well. This makes us realize that some investment advisors may not recognize the importance and power of financial planning.
As Certified Financial Planners, we understand the investment portfolio only makes up one part of a comprehensive financial plan. However, most Americans are not financial experts, and many tend to misperceive their investment portfolio as their financial plan.
In fact, only 18% of Americans have a written financial retirement plan in place according to the Fidelity Investments® Retirement Mindset Study 2019.
Now is the perfect time to check in with your clients and remind them what financial planning really is and begin to tie their investment reviews into their financial plan. If you haven’t recently updated your clients’ financial plan or have never gone through the planning process, this is an opportunity to enhance your suite of services and create an enhanced bond with your clients.
Here are three ways to help give your clients peace of mind during market uncertainties:
1) Start with the financial plan. It’s common for clients to want to know how their account is performing and/or request a market update at the beginning of your review meeting. These types of questions are rooted in the clients’ fears that the markets will somehow impact their current trajectory towards their financial goals, which is why you should start with the financial plan then back into the investment discussion. By focusing on the financial plan upfront, you’ll be able to demonstrate if and/or how the recent investment performance impacts your clients’ overall planning. Often, clients are pleasantly surprised and relieved to see the investment performance does not materially impact their financial plan.
2) Check their risk tolerance. If your client continues to express concerns around the markets, it may be an appropriate time to re-evaluate their risk tolerance and confirm their current allocation matches what they’re comfortable with. If there has been a change in their risk tolerance, then this may give you an opportunity to rebalance the portfolio to be in alignment with their current investment objectives and goals before a market correction or more significant market event occurs.
3) Provide alternative solutions. For clients who are more conservative and very concerned with where the markets are headed, you may want to consider providing alternative solutions that may be in your clients’ best interest, such as an annuity. While annuities aren’t right for everyone, they can offer guaranteed income which may provide your clients with better peace of mind moving forward. For more information, on how retirement income strategies benefit your clients, refer to the whitepapers written by Dr. Michael Finke and David Blanchette.
The reality is no one has a crystal ball; we can’t predict what’s going to happen in the markets nor can we control what the markets are going to do. As financial professionals, our clients trust our expertise to keep their goals and values at the core of their comprehensive financial plan and, ultimately, provide advice that is in their best interest.
It’s important for us to remember that what our clients see on the news can easily influence their emotions and create unnecessary fear around their investments and financial plan. We must understand there is a shared misperception among many potential clients and Centers of Influence that the investment portfolio is the financial plan, so it’s our responsibility as financial planners to remind them of what a financial plan really is.
The below illustration demonstrates what a financial plan is and what it is not. A true financial plan encompasses much more than investments and every financial decision is driven by the clients’ goals.
A recent study revealed there is a significant increase in the number of personal tax returns prepared by DIY tax software. Knowing this trend and understanding how tax planning fits into financial planning may create more opportunity for financial advisors. It’s an exciting time as financial planners and the future of our profession has never been brighter!
Amie Agamata is a CERTIFIED FINANCIAL PLANNER™ in San Diego, CA with clients across the U.S. Her team’s business mission is “working together to achieve financial success through understanding, education, and action©.” Amie serves as the NexGen President for the Financial Planning Association (FPA) of San Diego and member of the FPA Retirement Income Planning Advisory Council.
FPA NexGen, a community of the Financial Planning Association® (FPA®), aims to provide support and collaboration for those professionals new to the financial planning profession. With more than 2,500 like-minded young professionals, members of FPA NexGen are ready to share their experiences and further the future of the financial planning profession. Learn more about our engaged community and join the conversation on Twitter.
Here are past NexGen columns: