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Allow me to clarify. “Unsurprising” in the headline does not imply “unimportant.” Quite the opposite. Two of the big issues that are of concern to retail investors are credible and important. Those are interest rates and the upcoming presidential election.
Betterment's second annual 2024 Retail Investor Survey indicates that 78% of retail investors monitor interest rates while 57% described themselves as “anxious” regarding the presidential election. While those data points probably aren’t surprising to astute advisors, they’re worth paying attention for multiple reasons.
For example, many clients hold accounts outside of the advisor’s purview in which they’re making their own investing/trading decisions. Second, issues such as interest rates and presidential politics can be catalysts for some prospects to make the decision to hire an advisor. After all, retail investors don’t like feeling anxiety and advisors can ameliorate those feelings.
There’s another reason interest rate-pensive prospects should consider working with advisors and the reason is the same for folks that are already clients. High interest rates are compelling many retail investors to feast on cash, meaning they’re not adequately positioned to capitalize on rising equities.
“50% of investors increased savings to high-yield accounts and 42% of investors increased their cash holdings,” notes Betterment. “52% of investors have ‘chased yield’, or opened new accounts to take advantage of high interest rates.”
The Election Conversation
With so many clients either being the target demographic for cable news, spending ample time on social media or both, it’s understandable that many are concerned about the presidential election. Indeed, there are historical trends suggesting some sectors lead and lag in presidential election years, proving responsive to polling data. However, that’s a trading strategy, not long-term investment advice.
“When considering the potential impact of the elections, 47% of respondents are concerned that inflation will remain high and 29% noted they will increase their holdings in savings accounts,” notes Betterment.
For advisors working with politically aware clients, obviously it’s best to avoid “For whom are you voting?” conversations. It is, however, valid to remind clients markets often have near-term overreactions to polling data and electoral results and then recalibrate upon realizing the outcomes aren’t as bad as feared or as encouraging as hoped for.
And if it’s absolutely necessary to get into political minutia, tell the client that history suggests stocks often perform well under divided governments – one party holding the presidency, the other controlling both houses of Congress.
Positive Signs for Advisors
The Betterment survey includes some encouraging signs for advisors, including the point that those surveyed feel more confident about their financial futures because they’re working with financial professionals. That’s something to brag about.
“Investors with financial advisors (42%) consistently report more positive financial outlooks — from confidence in their financial situations to better investment performance and a greater likelihood of having an emergency fund,” notes Betterment.
The survey also said 34% of those queried became clients in the past 12 months and in really good news, 40% of those polled believe advisors are the best way to gain reliable advice. Take that social media.