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This article appears in the June 2023 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

Financial advisors are being called upon to help manage clients’ emotions as well their investments, but doing so hasn’t been onerous, according to advisors interviewed for the 2023 Brokerage Report Card.

Advisors were asked to rate the degree of difficulty they faced, on a scale of zero to 10, advising clients amid conditions such as high inflation and rising interest rates. The average response was just 3.3. (Sentiment was measured in January and February 2023.)

“It’s part of the job. Inflation might be up, down or sideways, but we base our expectations on very conservative modelling,” said an advisor with ScotiaMcLeod Inc. in Ontario. “[We’re] being proactive with clients to talk about what’s worrying them.”

“I’m high cash, [because we’re in a] market that’s different than anything we’ve seen in 40 years,” said an advisor with National Bank Financial Inc. in Ontario. “Some of my older clients get it,” the advisor added.

“Our job has never been easy,” said an advisor with Wellington-Altus Private Wealth Inc. “We have to deal with the cards we’re dealt and manage within that environment.”

The average age of advisors interviewed for the 2023 Report Card was 51.0, and average industry tenure was 23.3 years, similar to a year ago. For many advisors surveyed, last year’s market downturn would have not have been their first.

Yet, advisors who rated the difficulty of giving clients advice higher than the 3.3 average identified their sources of stress.

“[Guiding clients] is a challenge,” said an advisor with BMO Nesbitt Burns Inc. in Ontario, citing geopolitical issues and the uncertain economic environment. “[For] people in the decumulation phase, [there’s] less time for recovery. [The] runway has been shortened, so people are nervous.”

An advisor with CG Wealth Management in Ontario expressed worry about the future of their practice, saying, “I can’t have another bad year. A bad 2023 could have clients wavering.”

The extra work required to prepare clients for challenging economic conditions has added complexity to advisors’ roles.

“I feel like sometimes I’m a part-time therapist,” said an advisor with Edward Jones in Ontario.

Another title to add to advisors’ roles could be “teacher.” Many advisors interviewed for the Report Card stressed the need to educate clients about market fundamentals and long-term financial planning.

“It’s part of our job to [help clients] expect good times and bad,” said an advisor with CIBC Wood Gundy in British Columbia. “We manage expectations and educate on the bigger picture — and hand-hold [clients] to bring them along the learning curve and see through market noise.”

An advisor with Wellington-Altus described a recent client conversation during which they explained the different types of inflation. “We’re waiting for the [market to] pivot and, once that happens, markets will move to upside and we have to position for that.”

This type of education can ensure that clients aren’t caught unaware by economic shifts.

“We try hard to communicate openly with our clients so they’re not surprised by events,” said an advisor with Leede Jones Gable Inc. For example, the advisor said, “The current climate presents challenges for those who carry high debt levels.”

Prudent financial planning also plays an important role.

“Because we’ve developed a lot of financial plans, we’ve factored worst-case situations in,” said a Wellington-Altus advisor. “So, this is just working through cycles and time frames, [and we’ve] positioned clients to have cash on [the] side.”

The key is to always be honest, said an advisor with TD Wealth Private Investment Advice in Quebec. “No one wants to hear [they] lost something, but any time you have an environment where things decline, people [will] understand if [you] explain it to them.”

How difficult is advising clients in volatile markets?

Most advisors (87%) gave a difficulty rating between zero and six; of this larger group, the most common response was two out of 10. Thirteen percent gave a difficulty rating of seven or more.

Firms hope to bolster behavioural finance resources

Although most of the advisors interviewed for the 2023 Brokerage Report Card indicated that helping clients during volatile markets was not difficult, they did say firms could help them educate clients.

Continued access to market commentary, product experts and economic analysts will “help make those [hard client] conversations easier,” said an advisor with TD Wealth Private Investment Advice in Alberta.

An advisor with Edward Jones in British Columbia suggested their firm could play a role in “holding [the] hands of newer advisors, providing emotional support” and facilitating in-person client contact.

These types of appeals resonate with executives at some of the firms assessed in the Report Card.

“Advisors truly don’t get enough credit for all the work they do, particularly in the hard times,” said Shaun Hauser, founder and CEO of Wellington-Altus Private Wealth Inc. “They’re part-time accountant, part-time analyst, part-time psychologist, part-time business partner, part-time friend, part-time business colleague. [The list] goes on and on.”

Understanding clients and improving communication are important, agreed Kim Abbott, vice-president and director of sales and business development with Odlum Brown Ltd. “Internally, we’d like to focus on behavioural finance training for advisors [so they can] understand client emotions,” she said.