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In late May, “Economist Twitter,” which is vastly populated by folks with partisan aims, was verklempt by a Harris poll conducted for the British newspaper The Guardian that indicated many Americans aren’t feeling cheery about the economy.
The poll showed 55% of respondents believe the U.S. economy is shrinking and 56% perceive it as being in a recession. Nearly half of those surveyed think the S&P 500 is in the red year-to-date and the same percentage is believe unemployment is at a 50-year high. None of those facts are true. Far from it, but those perceptions are rooted in some reality – namely stubborn inflation and other factors such as decades-high auto loan and credit card delinquencies.
What those contrasts highlight is, at a minimum, a twofold proposition regarding advisors. First, the need for advisors is as strong as ever. Second, clients don’t necessarily need the “warm fuzzies”, but they do want to be reassured and some of those assurances can come from an advisor showing them that things aren’t as bad they believe.
Data indicate advisors may have their work cut out for them on that front, but it’s work worth committing to because if a client comes away from a conversation or meeting feeling better than they did prior, there’s substantial value in that.
Indeed, Clients Are Gloomy
Obviously, that’s a blanket statement as there’s a fair chance advisors have some clients that are optimistic about markets and the economy. However, a recent Nationwide Retirement Institute® survey confirms that in broad terms, clients aren’t feeling positive about the economy.
Consider the following point – one that certainly highlights the need for the aforementioned advisor reassurances. Eighty percent of those polled by Nationwide rate the economy as fair or poor. That overshoots the percentages in the Guardian poll by a wide margin. Even the experts believe there might be too much negativity among clients’ economic views.
“We feel that negative perceptions about the economy may be overblown, as this remains a positive overall environment. We see inflation continuing to slow, which should allow incomes to catch up to price increases over time,” notes Nationwide’s Kathy Bostjancic.
One area where advisors can help clients move past pessimistic outlooks is to help them realize that those feelings are born out of short-term headlines and events, but investing is a long-term endeavor. On a related note, advisors should tell clients that if they get too wrapped in near-term thinking, it can adversely affect their bottom lines.
“Making financial decisions based on short-term economic conditions or concerns can lead to missed opportunities and potential losses. For instance, pulling out of investments during a downturn can lock in losses and prevent clients from benefiting from eventual market recoveries,” says Kristi Martin Rodriguez of Nationwide. “By maintaining a long-term perspective, consumers may avoid these pitfalls and work toward achieving their financial goals with greater confidence and stability.”
Some Credible, but Fixable Concerns
Fortunately for advisors, some of the big client concerns mentioned by Nationwide are fixable. More than 70% of those queried believe the economy is teetering on the brink of recession, but data don’t support that outlook.
Seventy-six percent are worried about the upcoming presidential election and while those concerns may or may not be founded, contrary to what the political punditry would lead us to believe, economic and financial market performance is more the result of fundamentals than it is who’s in the White House.
“Basing investment strategies on sound financial principles and individual goals, rather than short-term political developments are considerations you may want to offer your clients,” adds Rodriguez. “As a financial professional, you can encourage your clients to keep their focus on the long-term plan instead of getting distracted by the latest political news.”
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