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2019: The Advisor – Client Relationship Will Become More Important Than Ever


Two Heads Are Better Than One — Especially Right Now

Sometimes a seemingly harmless phrase becomes a popular maxim, especially when it suggests a universal truth. ‘Two heads are better than one’ fits that description. In this case, the two heads are client-investor and advisor and the two will most often be better than one, especially in the year to come.

Having spoken professionally to approximately 300 accredited financial advisors in both Canada and the United States over the years, I’ve had the good fortune to achieve a reasonable understanding of their role and their connection to an individual’s financial health.

Every profession — including my own profession of journalism — has some questionable actors and there are a very few in the financial advisory profession. On more than one occasion, I have cringed when a friend repeated to me an advisor’s suggestions, while at the same time omitting some important concepts. However, by far, the vast majority of these individuals take a very caring, very knowledgeable and very serious attitude towards their clients’ financial well-being.

The current market tumult, along with the plunge earlier this year and in all probability plunges to come, underline the advisor’s role and how much many investors need timely perspective as well as wealth-building advice. Many investors felt blind-sided by the most recent sudden plunge, which affected many major equities and, therefore, most investment categories – whether retirement savings plans, investment portfolios, education plans or other financial strategies.

Many advisors had seen a pullback as inevitable and in some cases wisely positioned client portfolios for the shock. When it happened, many advisors suggested that their clients remain calm and stay the course.

They may have explained that – while a volatile period is not a good time to sell – it may be prudent to re-appraise investment attitudes. If the plunge-and-recovery roller coaster ride is more than a client can stomach, the time may have come for some portfolio reconstruction. On the other hand, if an individual sees the current upheaval as an understandable development, their portfolio can probably be left intact with little or no change. Professional advisors have been attempting to demonstrate their greater value beyond that of a ‘robo-advisor’. Current market conditions may help clients come to that conclusion more effectively than a glossy brochure or presentation.

The role of a good advisor may also include sifting through the smoke and confusion and encouraging the client to side-step some of the buzz-phrases one hears when the market seems to go strange. As stated in previous editions, two of the most abused words in the entire lexicon of investing are ‘buying opportunity’. A stock that has dropped dramatically does not necessarily present a so-called ‘buying opportunity’. That only applies when the fallen stock has a genuine chance of recovering and eventually providing a decent total return, a judgement with which the advisor can assist the client. If a stock that has pulled back tremendously does not have a clear chance of recovery, it is not a buying opportunity but just a stock that has pulled back tremendously.

Related: Is the Mini-Correction a Preview of What’s to Come?

Related: Cutting Through the Haze of Pot Stocks

The big trick, of course, is to ensure that the two heads look at the investing world in more or less the same way. A risk-averse client is best served by a conservative advisor or an advisor who can take a risk-averse approach with the client, a methodology that becomes even more important than ever in times of high market volatility.

Several factors on the financial horizon make this relationship more important than ever. We are very likely heading into a year of constant volatility combined with lower returns and with that, the need to formulate realistic expectations. Moreover, the universe of financial products continues becoming more complicated and the number of sources of information about them continues increasing. Finally, apart from market volatility as a whole, some iconic stocks, among them Tesla (TSLA), Facebook (FB) and various pot stocks appear poised for a continuing wild ride in the near term. Recessionary fears may affect the investment outlooks of some investors. It is possible that recessionary expectations will become built into equities before any recession actually occurs.

Taken together, these factors, along with increasingly aggressive financial advertising, mean that the advisor’s role as a knowledgeable financial safe haven will become more important than ever for the remainder of 2018 and in 2019.

Disclosure: I do not hold any units in any of the investments mentioned in this article and have no plans to purchase any of them.
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