What Should Advisers Focus On in a New Market Environment?

After the challenges of 2020’s volatile market, financial advisers should learn how to approach any future obstacles with their clients.


Financial advisers are continuing to navigate the challenges of providing counsel during the COVID-19 pandemic.

Since last February and March, advisers have shifted the way they deliver client advice and developed investment strategies to succeed during a volatile market—but now many fear inflation might loom ahead.

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“Very few money managers have managed money during a rising inflation market,” explains Chris Blunt, CEO at F&G, an annuity and life insurance provider. “The playbook that everyone has run with in these past 40 years has been this secular decline in inflation.”

Advisers who provided sound investment strategies to their clients, practiced diversification and communicated clear goals found success in 2020, says Anthony Saglimbene, a global market strategist at Ameriprise Financial. “When markets went through that rapid period in February and March, if advisers were able to counsel their clients and get them focused on the longer-term goals and benefits of the stock market, then they were able to participate not only in the recovery, but in the initial gains that followed,” Saglimbene notes.

Fast forward to present day, and advisers are addressing the difficulties their clients are facing now, including lingering worries about a near-term recession caused by coronavirus concerns. Saglimbene urges advisers to emphasize the strength of the current economy to their clients, as well as underlying pieces of growth in their investments.

Advisers also must counsel their clients on how to adjust their portfolios despite the specter of inflation in the economy and teach them how asset prices react to that, Saglimbene says. “Advisers who are proactive today are likely getting out ahead of the curve over the course of the next three to six months,” he says.

Saglimbene says he foresees stronger growth within the next six to 18 months thanks to vaccination efforts and a return to pre-COVID-19 activities, which he believes will benefit corporate profits, economic growth and asset prices. “With the backdrop of more vaccines, greater return to regular activity and higher growth or profits, that has historically been a very good environment for asset prices,” he says.

Blunt recommends advisers re-evaluate their conversations with clients and re-examine any biases they might have. Checking these inherent biases will help advisers avoid restrictions and potential losses on investments, he says.

One common example of a natural bias an adviser might have is a hesitation to recommend guaranteed lifetime income products otherwise known as annuities. While annuity features can grow retirement savings portfolios and provide supplemental income in retirement, many are hesitant to offer these options due to their complexities and past fiduciary concerns.

“It’s a great product, but because it’s called an annuity, there are many who have that bias [against it],” Blunt says.

To combat such biases, he suggests that advisers try challenging their thinking on these products. He says they should seek out a devil’s advocate or ask whether their bias is based on facts or a gut feeling.

A third option, and possibly the simplest one, is to just ask the client what they want out of their retirement. Because many clients come to financial advisers for counsel and guidance, it may seem counterintuitive to seek options from the clients themselves. But asking questions helps both parties understand what their mission is while positioning the client to take action on their retirement.

“What does the client want in the end process? What are you trying to accomplish and what are you worried about?” Blunt asks. “Going that extra mile allows the clients to articulate what they’d like to get out of the relationship.”

DOL Says It Won’t Enforce Final Rules on ESG and Proxy Voting

The department says it will not pursue enforcement actions against any plan fiduciary for failure to comply, and it plans to release further guidance on the issues.

The Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) announced Wednesday that it will not enforce recently published rules on the use of environmental, social and governance (ESG) investments within tax-qualified retirement plans and proxy voting and shareholder rights.

The DOL said that until it publishes further guidance, it will not enforce either final rule or pursue enforcement actions against any plan fiduciary for failing to comply with them. The DOL said it will update the EBSA website as more information becomes available.

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“These rules have created a perception that fiduciaries are at risk if they include any environmental, social and governance factors in the financial evaluation of plan investments and that they may need to have special justifications for even ordinary exercises of shareholder rights,” says Ali Khawar, principal deputy assistant secretary for EBSA. “We intend to conduct significantly more stakeholder outreach to determine how to craft rules that better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations.”

The DOL published its final rule on retirement plan investing, “Financial Factors in Selecting Plan Investments,” on November 13. The final rule said plan fiduciaries should select investments and investment courses of action based solely on consideration of “pecuniary,” or financial, factors.

The final rule, which no longer explicitly referred to ESG, included some significant changes compared with the DOL’s initial proposal, which would have placed stricter limits on ESG investments within retirement plans.

The DOL published its final rule “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” on December 16. It addressed obligations of plan fiduciaries under the Employee Retirement Income Security Act (ERISA) when voting proxies and exercising other shareholder rights in connection with plan investments in shares of stock.

A wide range of stakeholders, including asset managers, plan sponsors and consumer groups, questioned whether the two rules properly reflected the scope of fiduciaries’ duties under ERISA to act prudently and solely in the interest of plan participants and beneficiaries. The stakeholders also questioned whether or not the DOL rushed the rulemakings through under the previous administration and failed to adequately consider public comments on the value of ESG in improving long-term investment returns for retirement investors.

The stakeholders told the DOL that the ESG rule was deterring plan sponsors from using ESG in their investment decisions.

The Insured Retirement Institute (IRI) said Wednesday that it supports the DOL’s decision not to enforce the two recently published regulations.

“We strongly support today’s decision by the DOL to temporarily forgo enforcement of the ESG and proxy voting rules,” Jason Berkowitz, IRI chief legal and regulatory affairs officer, said in a statement. “This will provide an opportunity for the department to re-evaluate and possibly review or withdraw them.”

The IRI told the DOL in its comment letters that the new ESG rule was unnecessary and that it would actually impair plan sponsors from considering these factors when building their investment lineups by making it more complicated for sponsors to consider the impact of ESG issues.

Lisa Woll, CEO of US SIF: The Forum for Sustainable and Responsible Investment, also praised the DOL’s decision, saying the two final rules were “hastily finalized.”

The rules “ignored the large body of evidence that environmental, social and governance considerations and proxy voting are suitable for ERISA-governed retirement plans,” she said. “We thank DOL staff for quickly reaching out to stakeholders to understand the impacts of the rules and look forward to continuing to engage with the DOL to ensure that further guidance and rulemaking clearly articulate the suitability of ESG considerations and proxy voting in retirement plans.”

Likewise, Senator Patty Murray, D-Washington, chair of the Senate Health, Education, Labor and Pensions (HELP) Committee, praised the delay in enforcing the two final rules.

“This step is a win for workers, retirees, investors, businesses, communities, the environment—everyone,” the senator said in a statement. “Stopping these rules ensures people investing in their futures are able to make sound decisions to build their financial security while also helping to build a world that is more just, diverse and sustainable.”

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