Most FAs Have Changed Client Allocations Amid the Pandemic: FA-IQ Survey

By Ming Li October 9, 2020

Amid the Covid-19 pandemic and market volatility, about 40% of FAs surveyed by Financial Advisor IQ said their clients’ risk appetite has changed and significantly more FAs have altered their clients’ allocations.

Nearly one-third of the advisors surveyed by FA-IQ in July said their clients have either greatly (12% of respondents) or moderately (19%) reduced their risk appetite since February, which was before Covid-19 was declared a pandemic.

Nearly one-fifth of the advisors surveyed said their clients either greatly (6%) or moderately (13%) increased their risk appetite. Most, or 64%, said their clients’ risk appetite did not change over the four-month period.

The findings are from an online survey of 525 advisors conducted by FA-IQ from July 13 to July 16.

FA-IQ didn’t ask respondents to elaborate on their responses, but in a retail investor sentiment report published in June, research firm Cerulli Associates wrote that the market volatility that accompanied the Covid-19 crisis has “shattered investors’ optimism in the economy.”

Advisors will need to reassure clients that markets will eventually return to normal levels in the long run, particularly amid “near-unprecedented levels of uncertainty,” Cerulli wrote at the time.

Advisors should also focus on reinforcing their clients’ financial goals and objectives, while at the same time adjusting their clients’ portfolios to buffer against volatility, Cerulli added.

In reaction to the market volatility and economic downturn, most, or 72%, of advisors surveyed by FA-IQ changed their clients’ asset allocations — in various ways.

The top three changes were “opportunistically” increasing their clients’ exposure to higher-risk equities (30% of respondents), increasing exposure to “defensive" equities such as dividend-paying stocks (28%) and decreasing exposure to international investments (21%).

About 28% of the advisors surveyed said they made no changes to their clients' allocations.

Loren Fox, director of FA-IQ sister publication Ignites Research, has said that many investors feel that they want to take action during market crises, but taking dramatic action often isn’t the right choice.

"Financial advisors I’ve spoken with suggest that investors can be reassured by reviewing the financial plan, running through contingency plans, and making small changes such as rebalancing the mix of equity and fixed income," he said previously.

The FA-IQ survey also found that the recent market turbulence has made some strategies more attractive to advisors.

Among the strategies that have become more appealing in recent months are U.S. equity sectors (cited by 36% of the respondents), broad U.S. equity (23%), annuities (21%), smart-beta/factors (15%) and U.S. corporate bonds (15%).

The FA-IQ survey asked the advisors which topics they expect to focus on when talking to clients in the coming months.

The majority, or 78%, of respondents anticipate talks around clients’ financial plans and long-term goals. About 64% say they will discuss asset allocation and asset classes. A sizeable number of them plan to address clients’ financial anxiety (57%).

"Sometimes, advisors earn their pay by stopping investors from doing something dumb out of panic," Ignites Research’s Fox said previously. "This is an environment in which financial advisors can earn lifelong loyalty from a client."

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