Right or not, many envision the role of a financial advisor as that of a market sage providing timely predictions that help clients time the market to maximize profits. While that is far from an advisor’s only role, it’s one that exists under a great deal of pressure.

Especially in volatility, financial advisors are often charged with managing difficult discussions with clients regarding highly-sensitive subjects. Financial advisors must be able to help clients manage their emotions and take in the big picture view to achieve their investment goals.

While every client is unique, knowing the generational opinion trends about volatility and downturns may give you a helpful starting point for your client conversations.

Factors Impacting Investor Downturn Responses

Every individual investor has their own set of priorities and concerns shaped by their unique background and lived experience. When the markets are thriving and the money is flowing, investors tend to react in a similar fashion across the spectrum of age and experience. However, when the economy takes a significant downturn and the pressure begins to climb, the individual investor’s personalities and traits play a significant role in the individual investor’s actions and reactions.

A financial advisor must be able to view the market through the eyes of each client to provide the most effective guidance through turbulent times. At this stage, the financial advisor must wear many hats from market sage to life coach to help ease clients’ fears and help them chart their personal course through the choppy market waters.

If this topic is intimidating, know this: connecting with your clients is a skill you can hone, and done well, it can gain and retain your ideal clients.

Generational Investment Sentiment Trends

While every client is unique, there are predictable trends and sentiments that attach to each life stage. These constants can be used to better understand the investment style and likely responses of individual investors in each of the generational cohorts.

Millennials (1981-1996)

Millennials are now reaching or entrenched in middle age. Most Millennials with investment interests are at the mid-point of their careers. They have established themselves within their chosen field and have a fair amount of job security and income stability. At this stage in their earnings lifespan, Millennial investors are often predominantly concerned with accumulating wealth at a steady or rapid pace depending on the individual investor’s needs and goals.

That said, Millennials have had less experience with widespread, sustained market downturn events and tend to be more risk-sensitive than older generational cohorts. Millennial respondents to a recent global study showed a clear preference for safety over profit growth, with 72% preferring low-risk over high-yield investment opportunities. This means when the market begins to ark downward, Millennials are more likely to pivot to favor risk management and loss-reduction tactics over wealth creation.

The survey also found that 40% of Millennials respondents who seek professional guidance from financial advisors place the highest value on advice geared toward navigating volatile markets and mitigating risk while building sustainable long-term growth.

Consider having regular conversations with your Millennial clients to continuously re-evaluate their short-term and long-term goals and discuss the status of their current portfolio positioning and the likely impact of varied markets.

Gen X (1965-1980)

Gen-X clients are now nearing the end of their careers and beginning to take real concrete steps to ensure that their comfortable retirement is assured. This age group has a solid amount of experience under their belt having weathered the 2008 crash and subsequent ongoing market volatility. As a generation, Gen-X investors are focused on considerations surrounding the optimum time to retire and looking to build up their retirement investment accounts while they are still commanding a full-time income.

For these clients, market downturn events tend to trigger concerns about how a falling market will impact their ability to fulfill their established retirement goals. Edward Jones recently published a study showing that Gen-X respondents were less likely to be concerned with market ups and downs as long as they could be assured that their long-term healthcare and retirement needs would be met.

Financial advisors should be working with Gen-X clients to maximize their last earning years before retirement. When financial markets take a downturn, financial advisors will need to be prepared to show Gen-X investors how to take calculated risks that can help them safely boost their retirement investment income while protecting their accumulated earnings.

Recent major market events have led more Gen-X investors to consider pushing out their retirement date. Gen-X clients will be looking for help determining their ideal Social Security distribution plan, and evaluating their current debt vs savings ratio to determine their retirement needs and the best plan for getting to the finish line when market conditions are trending downward.

Specific topics that are likely to arise with Gen-X clients include guidance around liquidating assets to cover current liquidity concerns in a down economy. Consider steering clients toward securities-based lines of credit (SBLOCs) rather than having them tap their long-term retirement investment accounts. For Gen-X clients who are looking to reduce their tax burden to help ramp up their retirement investment income, you can frame the current market downturn as an opportunity presented by losses when it comes to the IRS.

Baby Boomers (1946-1964)

Baby Boomer investors have reached the end of their active careers and crossed the retirement investment-building finish line. This generation has weathered plenty of significant economic downturns and as a result, they are generally far less reactionary than their younger cohorts. That being said, Baby Boomers still experience anxiety and insecurity during extreme market volatility and sustained downtrends.

It is important to remember that Baby Boomers no longer have a regular earned income to help refill the coffers and act as a buffer against economic uncertainty. Financial advisors will need to provide regular assurance to Baby Boomer clients to demonstrate that their current investment portfolios are holding up well despite the market downturn.

In the event that an older investor’s portfolio does contain significant risk exposure, financial advisors should be ready to move quickly to help Baby Boomer clients re-allocate their investments to protect their retirement income and reduce undue security concerns.

An additional priority is reviewing their retirement plan’s exposure to unnecessary tax liability. Helping retired Boomers order their withdrawal plan correctly can help them maximize their existing savings.

Managing The Needs Of A Diverse Clientele

Managing the investment concerns of a diverse group of clients with unique generational concerns is not as difficult as it may seem. At their core, every investor shares the same core concern during market downturns: How will the current downturn impact my financial security now and in the future?

The financial advisor’s role is to work with each client individually to evaluate the short- and long-term investment goals as well as their current strategy and circumstances.

At WealthPlan Group, one of the key tools we use to evaluate our clients’ personalities is Riskalyze – a risk tolerance measurement tool that gives both the advisor and their clients a starting point to dialogue about risk tolerance.

A cash flow analysis will help evaluate their client’s cash needs vs their current reserves. Advisors should be prepared to present an investment strategy that takes into account the client’s remaining earning potential to maximize investment growth based on their current life stage and concerns.

Final Thoughts

Remember, as a financial advisor you play a very specific role in your client’s long-term financial stability and well-being. Do not hesitate to collaborate with other key players, like CPAs, tax attorneys, and real estate investment strategists to provide your clientele with the most comprehensive investment growth and risk management strategy in every type of market and at every life stage.

 

Advisory services provided through WealthPlan Investment Management, a Registered Investment Advisor.

WealthPlan Group LLC, is a holding company for WealthPlan Investment Management, LLC and WealthPlan Partners, LLC, both Registered Investment Advisors. WealthPlan Group, LLC is not itself a Registered Investment Advisor.