The Great Recession of 2008 and 2009 was one of the most dramatic financial experiences in the lifetime of most individuals. The Recession particularly hurt Baby Boomers and GenXers. The retirement savings for most Baby Boomers was decimated. GenXers were early in their careers and not prepared for a downturn. Millennials, while mostly still in school, were emotionally jolted by experiencing the consequences of family members, family friends and others who were suddenly out of a job.
In 2008 investors were very angry - especially with banks and investment managers because they blamed the market crash on the financial institutions. Not only did they not trust financial providers, they were also wary of their financial advisors. They watched their portfolios and accounts everyday because they were worried about what might happen next. Because of that, many investors developed an interest in investing and began to be more involved in what was going on with their accounts. According to our research that will be released this week, Evolving Investor Attitudes and Behaviors, in 2009, 69 percent of investors indicated that they liked to be involved in the day-to-day management of their investments. In fact, 64 percent of investors in 2009 said that they enjoyed investing and didn’t want to give it up.
What a difference a decade makes! In 2020, only 44 percent of investors want to be involved in the day-to-day management of their accounts. Only 43 percent indicate they enjoy investing and don’t want to give it up. Why is there such a difference?
1. Investors do not blame the financial services industry for the current financial meltdown. Investors today understand that the economic challenges are caused by the pandemic. They have a greater understanding of why the market crashed than they did in 2008 and they foresee an end to the crisis, although there is not agreement on how long it will take for the economy to recover.
2. Advisors have done a good job of instilling confidence in their clients in recent years. Granted, when the market is booming it is always easy to convince clients that you are an expert. But most financial advisors have broadened their services in the last ten years. Very few financial advisors today are merely “stock pickers”. Most financial advisory firms have begun to include financial planning and related services into their offerings. And while the level of additional services varies dramatically, it still adds additional depth and value to the relationships.
3. Most advisors have been proactive during this crisis and satisfaction levels have even improved in the past few weeks. According to our research regarding investors and the pandemic, The Corona Crash: What Advisors Should Be Saying to Investors Now, most investors think even more highly of their advisors because of the advice they have received since the market crash in late February.
4. Most investors have already experienced a financial downturn - so many are already looking forward to the recovery. In fact, while most investors are holding steady and not making any investment changes, those that are tend to be buying securities rather than selling.
There are clearly a significant number of differences between the 2020 Corona Crash and the 2008 entry into the Great Recession. In 2020, investors are worried about their health as well as their pocketbooks. An end is in sight (hopefully), therefore investors are looking to their advisors for help and advice rather than thinking about whether or not they should be firing them.