As we’ve been supporting our clients, communities, and teams through the pandemic, it’s been encouraging to see the steps being taken to evolve, grow, and capitalize on opportunities amongst the stress and fatigue that abounds. During periods of extreme market volatility and investor emotion this past year, advisors in particular have done an impressive job of serving their clients and providing much-needed reassurance.
We asked Brooks Friederich, Director of Research Strategy for Envestnet | PMC, to look back at the last ten months of 2020 and consider how advisors made adjustments to better serve their clients, the impact on advisor-client relationships, and what we might expect in the coming year as we move forward.
Communicating Around Risk
Early on in the pandemic, unexpected volatility led to investor concern. But, advisors stepped up their communication, keeping their clients aligned with their objectives despite their emotions.
For example, the number of risk tolerance changes is a proxy for how advisors and clients engaged around risk conversations. According to Envestnet internal benchmark data, advisors doubled their activity during the initial period of volatility (March 2020), which remained high for several subsequent months, indicating that advisors were closely engaging with their clients to discuss risk and potential portfolio adjustments.1
During peak volatility, advisors favored less risky assets, with cash spiking in March. But they strategically reduced cash levels over time, returning to pre-volatility levels.2
Leveraging FSPs To Focus On Client Engagement
As we observed in August 2020, prior to COVID-19, many advisors were already outsourcing to third-party model managers through our Fund Strategist Network, which was enabling them to focus more on their clients.
With consistent market volatility – related to both the pandemic and the election – it’s no surprise that many investors continued to feel anxious, requiring increased support from their advisors. Those advisors leveraging FSPs were in a good position to focus on their client relationships by outsourcing their investment management.
Anecdotally, it seems like this benefited both advisors and their clients, enabling advisors to prioritize the time spent with clients and helping to mitigate the swings taking place in the market. In a May 2020 survey from BlackRock on how volatility impacted 305 financial professionals’ practices, 92 percent of model and SMA users indicated that outsourcing improved their practices.3 In fact, 74 percent of respondents planned to increase their SMA and model usage over the subsequent 12 months, citing the following benefits:3
Increasing Client Satisfaction
Generally, consumers began to rely on their advisors more at the onset of the pandemic, shifting from a self-directed model.4
Our data indicates that clients were highly satisfied with how their advisors helped them work through the initial volatility related to the pandemic, with no significant change in the hiring or firing of advisors.5 This puts advisors in a good position to grow their existing relationships with additional services or scale their practices with new clients based on current client satisfaction.
We want to commend advisors on how they’ve served their clients and shifted their practices to accommodate the changes taking place in our industry and beyond, many of which could be here to stay.
Taking advantage of technology is likely a trend that will continue into 2021. The right combination of technologies, including FSPs, like those available through Envestnet | PMC, can increase efficiencies, allow for more personal and timely connections, and future-proof your practice.
We anticipate that advisors will look for opportunities to further take advantage of digital tools and outsourcing models to free up additional time and resources and offer more holistic capabilities. We also expect that advisors will seek out new strategic relationships to provide advice in more areas and add additional value and an enhanced experience for their clients. But this remains to be seen.
As you evolve your practice in 2021 and continue to look for opportunities to enhance your client relationships, our Regional Consultants are here to provide support. Contact them at firstname.lastname@example.org.
- Envestnet Benchmarks.
- Envestnet Analytics, RIA Pulse Report.
- BlackRock. In response to the COVID-19 induced volatility, during the week of 5/4/2020, BlackRock collected responses to a 15-question survey about wealth outsourcing (SMA & Models usage) experience and intentions from approximately 305 financial professionals across more than 10 independent and wire channel firms. The results above are a snapshot of the data collected as of 5/11/2020
- SpectremGroup, “Corona Crash: What Advisors Should Be Saying To Investors Now,” March-May 2020.
- Envestnet Analytics, Advisor Insights Weekly Updates: April 6 –April 10 blog post., Envestnet Analytics, Advisor Insights Weekly Updates: June 14 –June 19 blog post. Envestnet | YodleeCOVID-19 Income and Spending Trends.
Brooks Friederich, Director of Research Strategy
Mr. Friederich serves as Director of Research Strategy at Envestnet | PMC and is responsible for leading the firm’s efforts on Envestnet’s Fund Strategist Portfolio (FSP) research and due diligence. He also serves on PMC’s Investment Committee.
The information, analysis and opinions expressed herein are for informational purposes only and do not necessarily reflect the views of Envestnet. These views reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.