Investors and financial advisors are not entering 2022 in the same headspace as they started 2021.
They’re rethinking many aspects of financial planning, such as what retirement will really be like and if it’s worth waiting for. They’re also worried about inflation, volatility and taxes, all of which are factors that will shape the financial advising landscape heading into 2022.
The coronavirus pandemic, which is entering its third year, brought many of these questions and concerns to the forefront of advisors’ and clients’ minds.
For advisors eyeing where the next year will lead them, here are the top financial advising trends for 2022:
— Rethinking retirement.
— “Bucket list living.”
— Preparing for inflation.
— Less holding, more momentum.
— Advanced tax planning.
— Hybrid client communications.
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Rethinking Retirement
Clients’ experiences during the coronavirus pandemic were a bit like a retirement test-drive, wrote Joe Coughlin, director of the Massachusetts Institute of Technology’s AgeLab, in a recent white paper. “According to Dr. Coughlin, because the pandemic meant we were spending so much time at home, it made us reevaluate things like where we live, how we work, with whom we spend time, how we get around, what we do for fun and how we leverage technology,” says Ryan Sullivan, managing director of applied insights at Hartford Funds. As a result, many Americans now have a much better idea of what retirement life might actually be like.
“Financial professionals can help clients discover what lessons they learned during the pandemic and apply those learnings to their financial planning and retirement goals,” Sullivan says. He suggests asking clients questions such as these about their pandemic experiences:
— How did they feel about where they were living?
— If they worked remotely, what was that experience like?
— With whom do they wish they could have spent more — or less — time?
— Did they stay busy or were they quickly bored?
— Were they pining for travel or content to stay home?
— How much did they spend while in lockdown? Was it more or less than expected?
— How did they maintain their physical and mental health?
“It takes sensitivity, but helping clients or prospects to consider those questions may raise their awareness about what they truly want in retirement — perhaps something different than previously thought,” Sullivan says. “And once they can picture it, they can plan for it.”
[Read: 5 Investing Challenges Advisors Should Anticipate in 2022.]
“Bucket List Living”
The idea behind “bucket list living” is simple: Retirement planning should be more about enjoying the journey than focusing solely on the destination.
It’s a topic that Brad Levin, managing director and senior wealth advisor at The Colony Group, has been embracing with his clients. It’s also one he sees “becoming a major trend among the financial advisor community in 2022.”
Levin has seen a shift in client perspectives over the past two years, fostered in part by the pandemic. “After nearly two years of constrained travel ability, many people are looking to travel more, not only in retirement, but much more in the near future as well,” he says. “Some clients are also expressing a desire to retire earlier, while others want to maximize their enjoyment of life before reaching retirement.”
This doesn’t mean clients and advisors can stop planning for the future — advisors still need to help clients plan for a retirement that could last upwards of 30 years. But you can also help clients build plans to fund rewarding life experiences along their journey to retirement.
“Showing clients what it will take to realize these goals can lead to increased financial confidence and help them feel they can give themselves permission to enjoy today while also prudently planning for tomorrow,” Levin says.
Preparing for Inflation
Inflation will continue to be a key concern in 2022, says Brian Stivers, investment advisor and founder of Stivers Financial Services. As such, “investors and advisors alike will be looking to reallocate funds to investments that have the potential to do well during inflationary times,” he says. “Historically, these have been sectors such as energy, utilities, consumer staples, health care, banking and other inflation-friendly sectors.”
Investors with lower risk tolerances may be looking to flock to safety not just because of inflation, but also from COVID-19 and the midterm elections. Many advisors, low-risk investors or those with limited experience may prefer to wait out this inflationary period and see how the midterm elections may impact the market, Stivers says. This may trigger a larger movement into U.S. Treasurys, short-term fixed instruments, and even money markets and bank accounts.
“One of my long-term clients often says, in uncertain economic times that, ‘Zero is his hero,'” Stivers says, meaning his client is more concerned about avoiding loss than striving for gain. He adds, “2022 may be one of those years where many investors and advisors decide ‘zero is their hero.'”
Less Hold, More Momentum
The buy-and-hold strategy has been the most popular investment technique of recent decades, but Stivers thinks the recent market tumults may change this in 2022. “The volatility of 2018 in the market is likely to increase the popularity of momentum and trending strategies throughout 2022,” he says.
The idea behind market momentum and market trending strategies is that investors can use economic and market data to determine if the future trend is a good or bad time to be in the market, Stivers says. You can also use data to determine where the momentum is in the market sectors at any given time.
“Therefore, it makes sense to reallocate into equities when the trend, and momentum, is moving upwards and to reallocate to a defensive position, such as bonds or cash, when the momentum, or trending information, is tracking downwards,” he says. This, he predicts, is more of how investors and advisors will be thinking about investing in 2022.
Advanced Tax Planning
Most advisors have heard the news that the federal estate, gift and generation-skipping transfer taxes are increasing in 2022. The gift tax exclusion is rising to $16,000 while the estate and generation-skipping transfer tax exemptions are both $12.06 million per person.
But there’s a ticking clock on these exclusions and exemptions: “Under the current law, this higher estate and gift tax exemption will sunset on Dec. 31, 2025 with the exemption amount dropping to the prior exemption amount — projected to be between $6 and $7 million per person — unless the laws are changed prior to that time,” says Marla Petti, a certified public accountant, certified financial planner and senior wealth advisor at MAI Capital Management. This makes 2022 an ideal time to take advantage of the increased exemption, which can be used during a client’s lifetime, she says.
“We are employing various gifting strategies that may include the use of irrevocable trusts, including grantor retained annuity trusts, spousal lifetime access trusts, intentionally defective trusts or irrevocable life insurance trusts,” she says.
[READ: Advisors Eye Year-End Tax Moves for 2021.]
Hybrid Client Communication Models
The pandemic forced many advisors to adopt a virtual meeting style with clients, but advisors may not want to be too quick to abandon the practice. “As things continue to normalize in 2022, financial professionals should consider permanently implementing a hybrid model that blends in-person client interactions with continued virtual engagement,” Sullivan says.
He points to the numerous benefits of offering ongoing online interactions, such as enabling advisors and clients to use their time more efficiently and making it possible to “see” each other on a more frequent basis. Virtual meetings also make it easier for advisors to engage with other people in their clients’ networks, such as family, friends or other professionals, he says.
“The degree to which each client prefers virtual meetings to in-person encounters will be different, including that some may prefer no virtual interactions,” he says. “However, offering an online option can set a financial professional apart and could be an important differentiator for busy, tech-savvy prospects.”
For a hybrid communication model to be effective, he says, financial advisors will need to put the same amount of thought and effort into refining virtual meeting experiences as they do with in-person meetings. “One’s lighting, background, eye contact, body language and vocal tone are just as important online as in person, if not more so,” he says.
He adds one note of caution: Don’t book your virtual meetings back-to-back. “It can be somewhat disorienting to stare continuously into a webcam and speak to a computer screen,” he says. “Give yourself — and your eyes — an occasional break.”
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6 Financial Advising Trends for 2022 originally appeared on usnews.com
