In our recent parameters survey we asked you about client reactions to the ongoing global conflicts and political uncertainty. Fiona Bond analysed your responses and what practical steps are being taken to help reassure clients.
Financial markets have endured their fair share of uncertainty in recent times, fuelled by global conflicts and geopolitical uncertainties and this has had a knock-on effect on advised clients, say paraplanners.
Nearly half (48%) of paraplanners surveyed for Professional Paraplanner Parameters Survey said their clients have/ are being affected by global conflict and increasing state protectionism. In contrast, just 20% of respondents said their clients had not been affected, while just under a third (32%) said they were unsure.
Paraplanners said that clients had demonstrated a growing sense of nervousness and reduced confidence in response to global events.
One paraplanner told Professional Paraplanner: “The unsettling times are definitely having an impact on client discussions even though markets are doing relatively well recently. Uncertainty has a large role to play mentally.”
Paraplanners said events such as Covid, the Ukraine-Russia war and the ensuing energy crisis had impacted markets and client returns and some clients are only just starting to see a positive return from previous losses.
One respondent said: “Everyone is affected, as global conflicts affect global markets. Trump may increase state protectionism.”
However, among the 20% of paraplanners who said their clients had not been impacted, they pointed out that while clients are aware of global events, the conflicts in Ukraine and Gaza have already been largely priced in and the upturn in the global economy over the past 12 months had helped to quell concerns.
Another told Professional Paraplanner that the impact depends on the individual client and their general interest and awareness.
Taking steps to reassure clients
Paraplanners have taken a number of steps to help reassure clients about their financial planning and long-term investment prospects amid the geopolitical uncertainty. These include altering a client’s risk appetite to reflect a more cautious approach and using stress-tested cashflow analysis to reassure them.
For the majority of paraplanners, showing clients historic evidence of the investment cycle and how markets recover over the longer-term can help to assuage their fears.
“We remind them that they are investing for the long term and show them the return and volatility score of their portfolio over a 23 year period through the use of the Dimensional Returns programme,” one respondent explained.
Paraplanners said they refer to examples of deep market volatility, such as the 2008 financial crisis, to highlight how markets and investments can bounce back.
One paraplanner commented: “We remind them that investments are placed for the long term and historically, the markets have always recovered.”
“The world is always going through conflicts, but having a long-term horizon means you can ride it out,” another commented.
A fellow respondent echoed the sentiment: “We show them a chart of long term returns and the various spikes when crashes have occurred and that they have always recovered. We also compare the cost of timing the market to time in the market.”
The survey found that some paraplanners favour conversations around capacity for loss with clients and looking at their assets in addition to their investments can help to reassure them they do not ‘need’ to access their investments at this point in time.
However, for those with shorter-term needs, paraplanners said they give them a cash reserve as a “good buffer” against fluctuations or use lower risk to protect against unforeseen circumstances.
The findings of the survey also highlighted the importance of regular communication and updates and ensuring that clients are aware of the options available.
“There are always options,” one paraplanner pointed out. “Discussions will primarily start on the benefit of longer-term investing and looking at historical events and market crashes and how investments have recovered afterwards. If a client is in decumulation then this is clearly a huge part of these discussions. If the client is still nervous then reducing the risk of their portfolios of maximising diversification will also be discussed.”
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