Advisors need to get clients focused back on their investment plans to prevent people from making knee-jerk investment decisions based on recent market news, according to Serge Pépin, vice president, investment strategy, BMO Asset Management Inc. in Toronto.
Results from a recent poll by Toronto-based BMO InvestorLine reveal that 63% of Canadians are likely to adjust their investment portfolios because of changes in interest rates while another 50% said fluctuations in major stock indexes often leads to some trading in their portfolios.
“What happens is, when you do have these types of movements in markets, whether up or down, [clients] tend to overreact,” says Pépin. “They tend to react without really thinking of the consequences.”
As such, if a client is about to make a rash decision, advisors should review the client’s current financial situation and his or her financial goals for the next five to seven years, says Pépin. Chances are that after such a review the client will not be so anxious to make changes, so long as the investment plan was thorough.
Other triggers for clients to make sudden changes in their portfolio include currency changes, 42%, political social unrest and natural disasters, 44% and 43% respectively, and allegations of corruption with a company, 44%.
Forty-eight per cent of people surveyed also said they are likely to want to make changes to their investments based on corporate news, such as earnings and product launches. Depending on the portfolio, Pépin says wanting to invest in the latest product may not be so bad for a client.
“There’s really nothing wrong,” he says, “if you have a well-diversified portfolio and a portfolio that’s been constructed with very sound thinking to add the “flavour of the day” if it’s a small component of the portfolio.”
What doesn’t influence client investment decisions so much, according to BMO, is the media. Of those people surveyed only 14% said they have started to trade more because of an increase in the amount of financial news available.
For more tips on keeping clients on track, see Investment Executive, Financial plans: Keeping clients on track, Sept. 18, 2013.