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E*Trade: Advisors Focus on Volatility, Recession Risks in Client Portfolios

The pandemic is causing advisors to more actively manage against market volatility and recession risks, as well as navigate an influx of calls from worried clients, according to a new E*Trade survey.

Some 85% of independent advisors are actively managing against market volatility, up from 65% three months ago, according to a new study by E*Trade Advisor Services of 225 of its independent registered investment advisors.

“We are in unprecedented times, and with the length of the pandemic a big question mark, [market volatility is] undoubtedly a major driver of client anxiety,” said Gabriel Garcia, the managing director of E*Trade Advisor Services, in a statement.

More advisors are maneuvering their clients' portfolios against the recession too, with 55% of advisors managing for this now, compared with 47% in December. The study also revealed what advisors are doing to mitigate losses in client portfolios. Some advisors (22%) are looking at investments in health care more than they did in December, as pharmaceutical companies try to find a cure to COVID-19, Garcia said.

Advisors decreased their focus on political instability risks by nine percentage points over the three-month period. Inflation risks also took a backseat to the pandemic, with the percentage of advisors working against this risk declining by 11 percentage points since December.

Advisors largely did not change their stance on interest rate risks facing their clients in the past three months, with half of them managing for those risks in December and March, E*Trade found.

"Interest rates have been at historic lows for some time,” Garcia said. “This can put advisors with clients who are retired or close to retirement age at risk because they tend to be more heavily weighted towards fixed income, including Treasuries, to create income streams in their portfolio. Advisors have had to get creative and hunt for yield for their clients—potentially looking to sectors like utilities or blue-chips that offer a steady dividend.”

Though the novel coronavirus had been making headlines since December, advisors had not received any phone calls from clients worried about the virus until March. Thirty-eight percent of advisors said they received COVID-related phone calls during the month. Subsequently, the portion of advisors receiving inquiries about the recession has dropped from 28% in late 2019 to 5% this past March. Calls about the trade war and the gridlock in Washington have dropped off completely.

The virus is taking a toll on advisors’ day-to-day business activities.

“I'm going crazy with all the work to get done,” said Tara Unverzagt at South Bay Financial Partners in Torrance, Calif. “Between wellness calls to clients, prepping taxes—what I'm normally focused on—dealing with a market crash, end of quarter reports that go out this week, a new tax law dropped last December that we hadn't fully processed and now three new ones to integrate into our planning also.”

“I am staying in close contact with clients and doing a lot of ongoing due diligence on investments in the portfolios,” said Larry Steinberg, a financial advisor with Financial Architects in Pasadena, Calif. “I am constantly on the phone, participating in a lot of webinars, zoom meetings, conference calls …”

Dan Stous, the director of financial planning and a wealth advisor at Flagstone Wealth in Lincoln, Neb., said he and other advisors are working more hours than typical.

“We’re busy serving our clients, talking to them about how market movements affect them personally, answering questions they have, encouraging them, empathizing with them, and providing value any way we can,” he said.

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