Help clients implement an investment strategy

Financial advisors are crucial in helping clients navigate market risks and the psychological challenges of investing.

“One of the primary ways advisors demonstrate their value is to act as behavioural coaches to their clients,” said Michael Keaveney, vice-president of managed solutions with CIBC Asset Management, in a recent interview.

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Before expanding on advisors’ role as coaches, Keaveney considered the market outlook. Some central banks have begun cutting interest rates, he noted, and the U.S. Federal Reserve, which meets next week, is likely to follow suit, he said. Given the direction of monetary policy, financial conditions are “reasonably balanced,” he said.

“For fixed-income markets, falling central bank policy rates are helpful for bond prices,” Keaveney said. “The same can be said to varying degrees for different parts of the equity markets.”

He also highlighted market volatility and unpredictability, driven by politics. 

“Market volatility isn’t overly elevated currently, but we expect it to rise as we move through the end of the year,” Keaveney said, pointing to election results in countries such as India, South Africa, France and Mexico.

Political risk includes geopolitical tensions, especially China’s relations with Europe and the U.S., which could intensify with the upcoming U.S. election.

“U.S. elections are often associated with positive equity returns and higher market volatility,” Keaveney said, though he warned that high valuations may limit any gains this time around.

To navigate market risks, he suggested implementing a disciplined investment strategy, using diversification and behavioural coaching.

“From a behavioural standpoint, which could be more important to the individual investor, gaining knowledge and real-world experience that short-term risk is a standard feature of being an investor — that’s a powerful mitigator to crystallizing bad outcomes in the short term,” Keaveney said.

An investment strategy helps mitigate risk by focusing on long-term goals, with a schedule to invest.

“It’s not just putting the cash aside — though that is important,” Keaveney said. “It’s also putting it to work right away in the investments that have been determined to be suitable to the goal over the time horizon.”

Further, “Those with a regular investment strategy also have the advantage of making investments at times when the markets are down,” he said. “It’s a built-in buy-low strategy at times.”

By investing regularly, investors learn to be less fearful about short-term volatility; in fact, they come to see volatility as an opportunity, he said.

However, many investors don’t implement an investment strategy because of lack of knowledge and fear of losing money, Keaveney noted, citing CIBC research.

 “Given the complexity and uncertainty of investment markets and our very widespread human tendencies to bounce between emotional extremes of being overly optimistic and being fearful, there’s a strong value for advisors in helping investors focus on the things they control and away from the things they don’t,” he said.

Having an investment strategy helps clients focus on what’s within their control, he said.

“Implementing a regular investment program connects clients to their goals and takes away a lot of the potential for indecision and poor timing,” Keaveney said.

This article is part of the Advisor To Go program, powered by CIBC Asset Management. It was written without input from the sponsor.