What can a financial advisor offer when economic circumstances seem to matter more than your own decisions? More than you might think.
By Greg Pollock
Financial advisors always play a pivotal role for their clients during challenging or uncertain economic times. We saw it during the peak of COVID-19, as Canadians turned to their advisors for reassurance for everything they felt was on the horizon: The potential for sudden increases in healthcare costs, unexpected job loss, a decline in the value of retirement investments, and more.
If there was an unseen benefit to those conversations, it was that it opened a deeper level of communication between advisors and their clients – an openness which I am certain is making a difference now as many clients are reaching out to their advisors for advice on how to weather the rising difficulties of inflation.
To begin, the key benefit that a professional financial advisor can offer is simply to offer support that will prevent rash or emotional decisions. Inflation can make not only the daily cost of living more expensive, but it can also start to make large or other planned long-term purchases feel out of reach as well. This can easily lead to decisions that will be regretted later – everything from selling off investments for the future, to taking money out of accounts that have penalties for earlier withdrawals, or even making large gifts to family members that can undermine the financial security of the family itself.
In all of these cases, an advisor is not only going to be able to help by providing a voice of reason, but also by reassuring the client with what professional advisors know historically to be the case: That panic is never the best choice, that the future is worth sacrificing for in the present, and that tough times do turn back around. And, in cases where clients truly do need to make tough decisions, an advisor is crucial to making sure that they make the right ones.
Furthermore, because inflation can affect so many daily financial decisions, it’s also an opportunity for advisors to help their clients in ways they otherwise might not. Many clients will speak to their advisor only a few times a year, and often about very long-term issues or goals – life insurance, retirement, paying for their children’s education, etc. With inflation, on the other hand, clients are worried about things like the weekly cost of groceries, or if they might have to cancel summer vacation plans – things that are much more immediate, but still impactful and important to them. This offers a fantastic opportunity for advisors to introduce clients to the value of budgeting, to digital tools that can help them do it, and to many other subjects under the umbrella of financial literacy. Advisors who are knowledgeable will often connect their clients with credible online resources such as financialadviceforall.com, which features content by members of Advocis, The Financial Advisors Association of Canada.
A final way in which financial advisors can help clients during periods of inflation is through introducing them to strategies designed to protect against it. During times of uncertainty, a diversified portfolio is key. Through investment in sectors that have historically proven their ability to preserve value during inflationary periods, advisors can help guide their clients into safer waters. The key value of the advisor in this case, however, is that many of these strategies are not only things many clients might not know about or understand the nuances of, but which also might require changes and shifts in their overall financial plans – changes that a professional advisor will understand and can communicate clearly. This is where the ability of advisors with specialized designations such as the Professional Financial Advisor (PFA™) and the Chartered Life Underwriter (CLU®) can be particularly helpful. These types of qualifications – designations, licenses and other educational backgrounds – are vital for clients to know about their advisor.
Without an understanding of why these kinds of professional qualifications matter, Canadians can also be swayed easily by well-intentioned but inaccurate information from friends and family who may have fallen prey to misinformation about finance themselves. Recent surveys have shown that 50% of Canadians turn to their spouse for financial advice, with 39% also claiming to look towards social media. This is remarkably perilous, and more must be done to connect Canadians with trustworthy and professional financial advice.
While inflationary markets are tough, they offer a valuable opportunity for advisors to show clients why they matter. By helping clients avoid rash decisions, guiding them into revising their strategies to manage the impact of inflation on their long-term goals and working with them and their families to improve their financial literacy, they can make a more significant difference during challenging times than ever.
Greg Pollock is president and CEO of Advocis, The Financial Advisors Association of Canada.