For Advisors, Market Volatility May Have a Silver Lining

The current bear market and widespread economic anxiety may have financial advisors feeling squeamish as they watch assets under management (AUM) shrink and clients worry. But upticks in market volatility may have a silver lining: It increases demand for financial advice. According to research from Cerulli Associates, a desire for more financial advice tends to rise among investors following periods of increased volatility. For financial advisors, this trend can present an opportunity to demonstrate value to potential clients and strengthen ties with existing clients. Here’s what advisors should know. If you have questions specific to market volatility, a financial advisor can help.

Demand for Financial Advice Increases Following Periods of Volatility

The Cerulli study analyzed the last decade, which included three notable upticks in volatility measured by the CBOE Volatility Index (VIX). Several investor groups – self-directed investors, individuals who use advice for special events and advisor-assisted investors – saw an uptick in net advice demand in the year after each volatility spike. Advisor-directed investors – those who give advisors the most discretion over their assets – reported a need for more advice for the first time following a volatility uptick in 2021.

“With the last three years being three of the four highest volatility years of the past decade, investors increasingly are seeing the need for more financial advice than they might have in the past, especially at a time when markets (and society overall) have become a lot less predictable, even for those in the most limited advice relationships,” the survey says.

An advisor survey from SmartAsset reflects similar trends. In that survey, more than half of respondents reported that the most common reason clients reached out to them in the first quarter of 2022 was stock market volatility.

What Clients Want When Communicating With an Advisor

As the desire from investors for increased financial advice surges, financial advisors should look to the frequency and modes of communication favored by clients. According to Cerulli Associates, advisors may consider sending regular updates to their client base. They may opt to combine news articles or market updates with their own insights and commentary. They also can include an invitation for a follow-up conversation, which allows clients to ask questions and bring up concerns. Even if a client declines the invitation, the offer speaks volumes, the Cerulli report says.

In general, financial advisors primarily rely on phone calls and email when speaking to clients, according to the SmartAsset survey. Among respondents, 45% primarily call clients on the phone. About 30% of advisors surveyed use email as their main client communication method.

How Financial Advisors Can Take Advantage of Volatility-Inspired Demand

In the midst of market uncertainty and declining AUMs, savvy advisors may see the silver lining following market volatility – and capitalize on the opportunity.

Cerulli Associates outlines two strategies for advisors aiming to cultivate and strengthen client relationships amid spiking market volatility and heightened demand:

Develop a communications strategy. Financial advisors and wealth managers may opt to solidify a communications strategy that integrates market commentary, white papers, internal talking points and other techniques.

Throughout these communications, they may want to integrate an offer to meet on the phone, via video or in person to discuss a client’s individual questions and concerns.

Embrace financial planning. In this environment, advisors may expand the range of services their practice offers beyond investment management, opting to include financial planning as well. “Such an approach is likely to pay the most dividends in times of market stress when the extent to which a client trusts their advisor is more likely to be put to the test,” the report says.

One caveat, however, is that financial planning may be more difficult to scale than portfolio management services. To counter this downside, firms may need to hire specialists who carry credentials such as the certified financial planner (CFP) marks or chartered financial analyst (CFA) designations and work in teams.

Bottom Line

Data show that increased demand for financial advice may follow spiking market volatility. In today’s market environment, recognizing that tendency can present an opportunity for financial advisors. To capitalize on this trend, advisors should consider their communications strategy and the types of holistic planning services they offer.

Tips for Growing Your Financial Advisory Business

• Let us be your organic growth partner. If you are looking to grow your financial advisory business, check out SmartAsset’s SmartAdvisor platform. We match certified financial advisors with right-fit clients across the U.S.

• Expand your radius. SmartAsset’s recent survey shows that many advisors expect to continue meeting with clients remotely following COVID-19. Consider broadening your search and working with investors who are more comfortable with holding virtual meetings or spacing out in-person meetings.

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