Editor’s Note: The author of this piece wishes to remain anonymous.
I am quite sure that I am not the only advisor who is slightly concerned with the unabashed enthusiasm for extremely speculative investments these days. In talking with some of my colleagues, I know many others are fielding calls from clients and prospects who are asking about bitcoin, SPACs and ESG funds. After the past 13 years of trying to get people to embrace investing, it seems as though the general mood has changed, and even the average person has suddenly developed an insatiable appetite for risk. What is the right course of action for advisors in dealing with their clients and prospects in this current environment?
Constant Change
I think a good first step for most advisors is to realize, if they haven’t already, that we are living in a constantly changing marketplace where our value proposition is changing just as fast. The advisors who are constantly learning, evolving and adapting will be better positioned to weather these changes. If you had taken a sample poll of financial advisors in 2016, and asked them the future of Bitcoin, a very small percentage of them would have predicted its current meteoric rise. That same poll, conducted in 2021, would probably yield similar percentages of people on both sides of the aisle, clearly demonstrating the rise in adoption among many earlier skeptics.
What is the future of Bitcoin? There are hundreds and thousands of papers and YouTube videos debating that topic. Regardless of how it turns out, at what point does a financial advisor risk their credibility by holding on to thinking that is becoming outdated? On the other hand, jumping into and out of every hot new trend is just as damaging.
Amongst these changing trends, clients and prospects are still looking for good old-fashioned advice, but they are being exposed to all sorts of ideas and theories that can derail some of the traditional guidance. Explaining the need for diversification to a young investor becomes difficult when they are pegging their returns to Tesla stock performance. With all of the “noise” in the financial markets right now, how do advisors learn to tune it out? At what point should they be tuning in?
A recent headline in the financial news that caught my eye was that Fidelity and Schwab are both starting to market low-cost teenage brokerage accounts for some of their existing clients’ children. This tells me that the amount of Robinhood app downloads last year during the pandemic caught the big brokerage’s attention, and they want in on some of the action.
Speaking of Robinhood, how does the process of opening an account with one of our firms compare with opening an account with Robinhood? How many pages of disclosures and forms do your clients or prospects sign before they become a client? When a young investor can open an account and begin day trading at seemingly no cost in under five minutes with some of these new investing apps, to say that the value proposition has changed in our industry is an understatement.
Education
Education is a good second step. For today’s financial advisors to excel, they must not only be aware of current events and trends, but also able to articulate how some of these trends may be adapted to their clients’ and prospects’ situations.
I think it’s a good idea to read as much information as you can, preferably from both perspectives, in order to give an honest assessment. When it comes to clients asking about inflation, do you tell them that their fears are unfounded, or do you recommend they buy TIPS or gold? What do you say about the advisors and talking heads recommending the other course of action? Ask a group of financial advisors about Modern Monetary Theory and see the response you get. To some, it’s sound economic theory; to others it is the economic equivalent of nails on a chalkboard.
Back to the Basics
In a world that seems destined to become increasingly more complex, sometimes our job is to get our clients back to the basics. Now is the time to educate yourself on new strategies and be open to new methods. Just don’t forego the sound principles of financial planning: Build up an emergency fund, pay down debt, manage risks and invest for the future.
Seasoned Advisor (Editor’s Note: The author of this piece preferred to remain anonymous.)
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