Advisors: Is It Time to Adjust Your Investing Strategy?

Today’s investing environment is a whole new ballgame, and financial advisors are understandably wondering whether it’s time to come up with some new plays.

The fourth quarter of the year, in particular, is a critical time for advisors. They must make sure their investment strategy and communication of that plan to clients are airtight.

Financial advisors not only have to deliver results, but they also need to make sure the story behind all that effort is crystal clear.

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The Playing Field Has Changed

Consider the current investment climate for you and your clients. Stocks are peeling back from record highs. Bond yields are so low, you need a microscope to see them. The bond alternatives you employed in the past don’t yield much either, and they are backed by some of the most precarious corporate credit conditions ever.

You want to provide quality fiduciary counsel but also keep your clients happy. And when the other side of this frenzy hits, you won’t want to rub salt in their wounds by having no answer or a response that leaves them thinking they’d rather do the investing themselves. Based on the constant flurry of ads pitching robo-advisor-type services, you know many will think exactly that.

Meanwhile, the Federal Reserve appears to have convinced many investors that they can take on tons of risk without actually taking risk. In this case, however, there will be consequences to investor portfolios. These are not normal times at all.

[READ: Questions to Ask Advisors on Their Investing Strategy.]

Complacency Can Be Dangerous

In this environment, you cannot call the same old plays from the investment strategy playbook. Your clients are likely feeling confident, complacent or both. You know from history that this is not a forever market in speculation, and the rush to cryptocurrencies, nonfungible tokens, special-purpose acquisition companies and the like will eventually result in a hard reversal.

Few may recall that when the S&P 500 lost 33% of its value in just five weeks last year, that loss wiped out the entire gain that index had made since one month after the 2016 election. That’s right: The S&P 500 was down 0.98% from Dec. 9, 2016, through March 23, 2020, a period of over three years. So, you don’t have to go way back in your memory to realize that stock market investing, as great as it is, is highly cyclical. And bonds are essentially powerless to help on a long-term basis, thanks to years of suppressed yields.

Is It Time to Adjust Your Investment Strategy?

After more than a decade of a generally investor-friendly environment, financial advisors must now make an important assessment of their practice. They must determine how much of the growth in assets under management, client retention and steadiness of the practice’s investment segment is simply due to market conditions.

In other words, has the stock market tail wagged the advisory practice dog? Or have the proactive steps you’ve taken in planning, client care and investment work created a fortress-like business that no bear market or recession can penetrate?

Financial advisors should consider these investment best practices when rethinking their strategies.

[Read: Advisors, Prevent Clients From Constantly Reworking Investing Timelines.]

Have a clear purpose. Your clients might care about the stocks, exchange-traded funds, mutual funds, bonds or alternative investments they own in their portfolio. However, that pales in comparison to how much they care about why they own those securities and why they are allocated the way they are.

Rather than stick to what every other advisor says, give them something that cuts straight to the heart of the matter. Specifically, draw a figurative line from their objectives and real-life goals to what ends up in their portfolio, now and in the future. Because a portfolio is not the end goal. It is simply a means to an end.

Be flexible and adaptive in your portfolio construction. Direct index companies are picking up on this concept. Instead of investing in an index or group of indexes as a final strategy, they use those indexes as a starting point from which an infinite amount of portfolio alterations can be made.

No two advisors have the exact same fit when it comes to a dress or a suit. Portfolios can be that way now, too. And frankly, that’s what clients are likely to demand in the years to come. That means you need some mechanism that can add flexibility to whatever your main investment approach is.

If you do this, you will also better prepare your portfolio to adapt to a rapidly changing market climate. Waiting on deck is another pandemic wave, a change in Fed policy that freaks out the markets, a geopolitical threat, inflation, stagflation or deflation. Your clients are likely a microcosm of the general market mood. So, when they start to feel threatened by a volatile market, it will already be too late for you to close the gap between worried and confident.

Be selective. When you can buy just about any stock and have a good chance to make money, that success can blind your clients to the fact that their bonds and cash are likely producing a negative return net of your advisory fee.

While there is still time, consider whether their portfolios have too many “hangers-on” in them. That is, can you identify a portion of the investments that truly carry the weight, while the others are simply window dressing? If so, this is a good time to raise the bar on what you are willing to invest in and communicate to your clients that you are doing it.

Taking this one proactive step now can plant a valuable seed in your clients’ minds, reducing the risk that you’ll have to scramble to come up with an explanation for temporary performance shocks, or whatever else occurs, during the next bout of volatility.


Clients’ memories may be short when it comes to flash crashes like those in 2020 and 2018, but their panic will return the next time the markets fall but don’t get right up. Be proactive and not reactive to earn their trust and keep their business for the long haul.

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