Volatility Can Strengthen the Advisory Relationship

There is a real and growing disparity between advisers’ and clients’ reactions to risks and opportunities in the equity markets, according to the Eaton Vance Advisor Top-of-Mind Index.

According to the asset management firm’s adviser outlook index, which compiles the responses of more than 1,000 U.S. advisers, financial professionals “continue to view market volatility as their top concern, but many have also learned to deal with volatility, even as their clients increasingly panic.”

Highlighting the ongoing anxiety of advisory clients, “managing market volatility” held the top score (123.3) on the index for the third consecutive quarter. Findings also show more than half (55%) of advisers feel volatility has grown in the last 12 months, with nearly the same number of advisers (53%) saying they believe significant market volatility is the “new normal.” 

“Market fluctuations in 2016 have been unpredictable,” explains John Moninger, managing director of retail sales for Eaton Vance. “Uncertainty can be unsettling, but advisers have indicated they are growing accustomed to operating in this environment and looking for opportunities volatility presents.”  

Clients are clearly not being as stoic, however. A strong majority (81%), for example, say they are primarily motivated by fear of loss, up from 72% just 12 months ago. Further, more than half of advisory clients (62%) feel volatility is primarily a source of loss, rather than a potential source of return—up from 56% less than a year ago.

“Most advisers have learned how to cope with volatility, but their clients have not,” Moninger says. “The growing disparity between adviser and client perspectives highlights the importance of open, frequent communication and establishing and following a carefully constructed investment plan.” 

Interestingly, nearly three out of 10 (28%) advisers actually report volatility has strengthened their relationships with clients due to more interaction, and another 20% gained new clients due to ongoing market volatility. Of those advisers who indicated fear as the primary motivator among clients, 42% increased outbound client communication and 38% indicated clients are contacting them more frequently, Eaton Vance finds.

When asked to look ahead, more than half of advisers believe domestic issues including Federal Reserve policy (26%) and stalled U.S. economic growth (25%) will be the primary drivers of volatility for the remainder of 2016. 

For more information and research visit www.eatonvance.com.