Being an investor during volatile periods is no easy feat. And for many it is even more difficult if they trade on their own and they lack the knowledge and capacity to withstand high market volatility. Investors tend to be overconfident about their investment abilities during bull markets. However, if investors lack the shrewdness needed when volatility spikes, that overconfidence can soon turn in overreaction and panic.
The past few weeks highlighted how important the investor-adviser relationship is. We have experienced a surge in phone calls and e-mails from clients who over the past decade traded predominantly on their own or through an execution-only service, where no advice is sought. Despite the many resources available online, which can assist investors make informed decisions, many have sought the insights of a financial adviser. I expect this trend to hold as the direction of markets remains less predictable.
A survey on local investor sentiment, conducted in early 2019, showed that local investors who trade on their own without seeking advice have declined to eight per cent. A year earlier, the same figure stood at 18 per cent. This sharp decline could be explained by the sudden market sell-off in international equities during the last quarter of 2018. In other words, when markets declined sharply, investors’ confidence in their ability to trade on their own declined.
Advisers are keen to work with loyal investors who are clear about their investment goals and are willing to provide their financial adviser with information for the latter to be able to advise how to reach those goals.
On the other hand, investors are happy to work with an adviser who has a genuine interest in them. A long-term relationship between a client and his financial adviser comes very handy at all times, especially during times of volatility.
Meaningful relationships are built on various critical elements and, most probably, trust is the most important. For many, discussing wealth is personal and disclosing certain financial details is even more difficult. Discussing the topic in depth with a financial adviser, who initially is a stranger, to arrive to a solution which aims to reach your financials goals, can only be overcome with trust.
Before investment advice is given, a financial adviser holds discussions with existing and potential clients to determine their investment objectives, their future expectations and risk tolerance. In addition, he seeks insight about the clients’ previous investment experiences and their current financial situation. In the process, the adviser is building knowledge about his clients, which knowledge is ultimately used to offer proper and informative advice.
Some thought that with technological advancements the role of the financial intermediary is history. Definitely, the rise of online trading platforms and robo-advice has taken away part of the execution-only business from the traditional investment advisers. However, with today’s regulatory environment and companies adopting to the changes, there are stark differences between the services offered by online platforms and the traditional wealth management providers. The latter have embraced technological advancements, improved reporting and encourage advisers to follow closely developments in financial markets to be able to offer insight, empathy and comfort during different market periods.
The target client of a wealth management company is one who needs investment advice or portfolio management. An investor wants to have a contact person to share investment ideas and to seek advice. In addition, the latter may have the investment knowledge but not the willingness and time to trade on his own. On the other hand, the online trading platform is seeking to lure investors who are willing and able to make investment decisions on their own.
Therefore, the wealth management business strives to build long-term meaningful relationships with its clients, where portfolios are usually managed on an advisory or discretionary basis and where client-adviser interaction is key for the investor to reach his or her investment objectives.
After nearly 11 years working in the industry, I can safely say that today investors have a stronger desire to learn and educate themselves. We have seen a rise in investors who want an active role in the management of their portfolio.
In the investment advisory business, the strength of an adviser’s relationship with his clients is highly correlated with the trust a client has with the investment company. As a result, the latter should make sure that the people on the field are well equipped with a wide array of soft skills such as the ability to actively listen, communicate and empathise and not just the ability to offer investment solutions.
In addition, the ability of the financial adviser to discuss with his clients various aspects of finance will contribute towards long-term relationships, as clients become more knowledgeable and versed with the world of finance and investments.
Financial advisers should keep themselves abreast of the main financial and economic themes impacting markets and investors’ sentiment. In addition, as the investment adviser becomes the client’s trusted person, it is very likely that the latter will refer to the adviser for anything related to finance. Having a network of trustworthy professionals is key to be able to assist your client holistically. Finally, establishing regular check-ins and keeping clients updated with anything which is of interest to them is a must to retain a strong relationship which cannot be replaced by technology.
This article was prepared by Gabriel Mansueto, head of investment advisers at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The company is licensed to conduct investment services by the MFSA and is a member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For more information, contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on 2122 4410, or e-mail gabriel.mansueto@jesmondmizzi.com