When the COVID-19 crisis first hit, it changed many people’s day-to-day realities and cast their futures into uncertainty, making it difficult for them to focus on distant goals. But now that the initial shock has passed, financial advisors say clients are once again starting to discuss their long-term plans.
“There were a few months there in which the whole notion of the future felt like it was just not relevant,” says Karin Mizgala, co-founder and chief executive officer of Money Coaches Canada in Vancouver. “There was more focus on the immediacy of, ‘Are my investments still okay?’ ‘Do I still have a job?’ ‘What does this mean to my family?’ [and] trying to get organized with the kids and parents at home.”
However, she says that through June and into July, her firm’s website has seen an uptick in inquiries about retirement planning to almost double historical numbers.
“It feels like we’re now moving into a new phase in which people are starting to think about what impact COVID-19 and the financial markets are having on their life and on their future,” Ms. Mizgala says. “COVID-19 has forced us to really think about what’s important to us, what’s meaningful, what our values and goals are.”
As clients pay renewed attention to their goals and, in some cases, begin to change them – for example, she says several of her clients are now more focused on charitable giving – advisors can check in to make sure those goals are meaningful, measurable and achievable.
Ms. Mizgala teases out her clients’ goals by asking open-ended questions, engaging in active listening and reflecting client answers back to them.
“It’s a back-and-forth dialogue that ultimately helps them and helps us hone in on the direction that they want to go in and, of course, where they’re at now. Then, the planning process fills in the gaps of laying out what the various options are and scenarios that can help them achieve those goals,” she says. “The beautiful thing about planning and working with a financial planner is that you can put pen to paper on any idea without having to actually execute on it until you look at the pros and cons.”
Nicole Ewing, Canadian strategist, client needs research, at Edward Jones in Ottawa, also says it’s important to dig deeper to get a clear picture of a client’s goals.
“Many clients default to, ‘Well, I want to retire,’” she says. Asking probing questions like the following can help make that more specific: “What does that look like? Does retirement mean financial freedom? Does it mean a particular age? Does it mean a particular income level at that point? Having a dialogue about it definitely helps define the goals better.”
In addition, Ms. Ewing sees clients’ shorter-term, more immediate concerns as a potential jumping-off point that can broaden conversations about longer-term planning and introduce new goals clients may not have considered.
For example, she says many clients are focused on staying healthy right now, so perhaps it’s a good time to discuss how to manage the financial repercussions of health challenges in the future. Similarly, with some clients concerned about downward pressure on real estate values, it may be appropriate to talk about how to make retirement plans less vulnerable to fluctuations in the real estate market.
“We can’t control some of the events that might happen to us during our lifetimes, but we can plan for them and take the opportunity of what we’re experiencing now to think about how it might impact us later,” Ms. Ewing says. “Focusing on goals allows us to look forward to that future, and building that foundation now allows us to work toward that. For a lot of people, focusing on goals provides comfort and a feeling of hope.”
While in-depth conversations are one way to zero in on a client’s goals, a recent Morningstar Inc. study titled “Mining for Goals,” suggests that providing clients with a menu of choices can help significantly, too. According to the study, 73 per cent of survey participants changed one of the three top goals they had shared with the researchers after they saw a standardized master list of 17 potential goals.
“[We asked the study’s participants] two very straightforward questions – Why are you doing this? What are you aspiring to? – and many of the answers they give right off the top of their heads turn out to be not very reliable,” says Ryan Murphy, head of decisions sciences at Morningstar Investment Management in Chicago.
“[But] just giving people a little bit more time and space and a structured process to think through what their motivations and what their preferences are can help them identify and communicate those better. That really helps the advising process and helps people develop a financial plan that serves their long-term best interests,” he adds.
Starting with a list may be more important than ever in the current environment.
“There’s good evidence that shows during times of heightened stress and uncertainty, people’s attention narrows, their focus on the here and now is amplified, and it gets harder to think about the abstract or the more distant future,” Mr. Murphy says.
Whether clients are still in crisis mode or emerging from it, Mr. Murphy says that, “good financial planners are able to help their clients articulate and understand their reasons for investing – what their goals are – and then make sure that their financial plans, their asset allocations, the details of investing match up nicely to serving those long-term goals.”