|Being The Calm Port In A Market Storm Has Made Advisors More Trusted Than Doctors And Accountants|
|Friday, June 08, 2012 13:53|
Among the mass affluent, more investors trust their financial advisors than trust their doctors or their accountants. A recent survey of investors with $200,000 in assets showed the trust factor of these investors at 84% compared to 79% for their doctors and 74% for their accountants. This is welcome news after huge breaches of trust from the likes of Madoff and Stanford.
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It would make sense that advisors who weathered the 2008 crisis with their clients would have, in the process, created a much stronger bond with them. One question of the survey asked about the advice clients received as they were experiencing the crisis. Most—62%—recommended staying invested in the market, which proved to be a good strategy. Another 20% advised clients to free up some cash while keeping their other assets invested. Only 2% of advisors recommended liquidating portfolios completely.
Many investors might have simply thrown in the towel and sold everything. The ones who were advised to remain invested but also to raise some cash probably experienced better overall performance—if they had the wherewithal to reinvest that cash when the market looked the worst. This time, they may have had more confidence to do so since Warren Buffett made a very public statement when he began reinvesting during the latter half of 2008.
Investors who had automatic reinvestment of dividends also were likely to have fared well. The point is not how well investor portfolios performed through the crisis. It’s how well their advisors were able to keep them focused on their strategies instead of panicking during one of the worst market and economic crises ever experienced.
The trusted advisors during the 2008 crisis were also the ones who explained their recommendations clearly and who were transparent about the way they get paid. Over half of survey respondents said these factors were very important and another 49% said quick answers to their questions also ranked high on the trust factor list.
Interestingly, in choosing advisors, only 21% said referrals from family and friends influenced their decisions.