Steady steps forward: prepare to help clients navigate a new economic outlook

As the tide of uncertainty seems to be receding in the post-pandemic economy, financial professionals and clients alike face new challenges and opportunities.

Monetary policy leaders have made moves to promote economic stability and strengthen a foundation for continued growth, but amid shifting global markets, evolving consumer behaviors, continued geopolitical conflicts and disruptive technology advancements, uncertainty remains a constant companion.

Moving forward, even the most optimistic investor should prepare to navigate these complex and shifting economic waters with a focus on balance and adaptability.

But how does that translate into action when it comes to financial professionals and guidance for clients?

In this article, we’ll explore ways to help clients take a renewed perspective on their investing and financial planning strategies, focusing on diversified investment strategies, strong client relationships and building investor resilience.

Setting a foundation for stability moving forward

The Federal Reserve’s Federal Open Market Committee’s December 2023 projections pointed to small, yet steady, incremental increases in gross domestic product and unemployment. At the same time, the Fed is predicting a slow and steady cooling of inflation, as well as continued reductions in interest rates.¹

The GDP growth, resilient labor market and slow decline in inflation all point toward economic recovery, but the Fed’s projections come with a strong dose of uncertainty — suggesting a growing appreciation of disruptive global events’ power to outsmart current projection models. It’s a humbling reminder of the complexity of modern markets.

For many investors, that uncertainty may be off-putting, but for those interested in navigating back into the markets, it may also help make a strong case for diversification.

Invite a reassessment of client risk tolerance to build stronger relationships

The pandemic has indelibly altered both the investment landscape and investors’ mindsets, and it’s fair to expect clients to move forward with different levels of risk tolerance than they had before. An essential first step for financial professionals is to reassess individual client profiles to understand how their comfort levels with risk may have changed.

This might start with a review of clients’ past investment decisions and reactions to market volatility. Probing conversations or interviews can help clients clarify and articulate their financial goals and past experiences, and more structured tools like surveys and questionnaires can also be useful.

Asking clients about their retirement time horizon, major expenditures, hopes and expectations for their retirement income and lifestyle, and willingness to bear the consequences of potential loss can help build a robust picture of their tolerance for investment risk.

Regular, open communication with a personal approach does more than just improve a financial professional’s understanding of client needs and risk tolerance. It demonstrates compassion and care. In this time of long, slow recovery, it’s fair to expect clients to value the guidance of a professional who doesn’t just understand markets and investments, but who understands them personally.

Diversification strategies for a changed investment climate

Portfolio diversification remains an important strategy for both enhancing the robustness of investment portfolios and bolstering client confidence. Diversifying across a wide range of asset classes, industries and geographies can help hedge against the impact of market volatility on a portfolio.

Annuities can serve as a particularly useful diversification tool for many clients. Fixed annuities can offer steady, fixed rates of return and guaranteed retirement income, to help reduce anxieties about market losses or running out of money in retirement. Variable index-linked annuities can offer the growth potential of full market exposure with guaranteed limits on loss. And registered index-linked annuities — often referred to as RILAs — offer clients a personalized balance between growth potential and a measure of downside protection.

Discussing the role of annuities in a diversified portfolio can help financial professionals find ways to help clients meet their retirement income needs while also managing uncertainty.

Helping clients prepare to face uncertainty with resilience

Guiding clients forward in a shifting investment landscape can be challenging, but a clearer understanding of the “whys” behind their choices and the specific ways their emotional reactions can influence decision-making can be especially helpful. That’s where a behavioral finance approach can help.

Behavioral finance is grounded on an understanding that uncertainty is a given — and better financial decision-making, even in times of stress, is possible with planning, awareness and a values-based approach. When clients understand the ways biases, emotions and attitudes can influence their investment choices, they can be more intentional and rational in their planning.

TruStage’s Behavioral Finance Advice program includes numerous resources and tools to help you connect with clients, and to help clients better connect with the core values motivating their investment decisions. Try our free, interactive values sorting tool today — or reach out to the TruStage Annuities Solutions Desk for help by calling 1.877.345.GROW (4769), option 1.