Alleviate Investor Anxiety with a Comprehensive Financial Plan

There is a split among wealthy investors today when it comes to the economy and their financial future. While a small majority feel optimistic, more than four in 10 are uncertain and uncomfortable. In recent research, we explored this gap to understand why people feel this way, as well as what advisors can do to help their clients who are surrounded by these divergent long-term perspectives.

Financial Anxieties Among America’s Wealthy

As we sought to understand these investors, our research revealed that a quarter of high net worth investors are concerned about their long-term financial security due to the pandemic and the economic disruption left in its wake. Nearly half (48%) of affluent investors are concerned about managing performance, risk and market volatility. While markets largely maintained momentum, there were certainly moments of volatility and headwinds to consider, such as inflation, supply chain disruptions and investor sentiment regarding record valuations. shares today. Given their concerns, many investors want to feel empowered to accept more risk in their portfolio, including asset classes like alternative investments. Over a third (34%) of respondents we surveyed said they were considering alternative investments, and of this group, 23% were high net worth investors and 59% were very high net worth investors.

Unsurprisingly, UHNW investors are also the most worried about the impacts of emerging tax policies. New income taxes, wealth transfers, realized and even unrealized capital gains that are being discussed in the halls of Congress could affect the net worth of UHNW Americans for years to come. Overall, a majority of affluent investors (51%) consider this one of their top concerns and they look to their advisor for help addressing it.

The concerns of wealthy investors are certainly not related to the ebbs and flows of the current market. In fact, nearly half (49%) also worry about leaving a financial legacy for loved ones. This anxiety exists even among UHNW investors, 20% of whom are concerned about the idea of ​​providing a legacy. Interestingly, nearly half of all affluent Americans expressed a lack of confidence in preparing their heirs to receive an inheritance, providing an opportunity for cross-generational financial counseling.

Opportunities to create more certainty

So what does all this mean? In this environment, advisors have the opportunity to help alleviate their clients’ anxiety. To help clients manage these worries, every financial plan must first be rooted in the unique circumstances of each investor’s life, including their long-term vision, values ​​and evolving goals, and include the sound advice of a financial expert. Clearly, financial advisors can and should be part of the solution. In fact, our study found that 40% of affluent Americans who had an advisor experienced asset growth during the pandemic, while only 27% of those without an advisor could report the same results. Those with advisors also said they felt much more willing to transfer their wealth to heirs than those who didn’t work with a financial expert (64% vs. 45%, respectively, said they had a wealth transfer plan).

Importantly, this tailored financial plan should also combine the right mix of life insurance for protection and investments for growth – a combination that can help eliminate worries about “what ifs” and allow clients to realize “what can be”, enabling them to live the life they want today and in the future. In any financial season, but especially in this particularly uncertain environment, investors’ concerns cannot be resolved by investments alone. Instead, confidence is built by crafting a financial plan that can thrive through a wide variety of economic scenarios. Regularly discuss with clients planning strategies, including insurance and investments to manage their financial future, paying particular attention to key factors: timing, risk tolerance, inflation, longevity, health care costs, taxes and heritage.

A recent To analyse illustrates why this approach is so beneficial. The study involved a couple, both aged 35, comparing a sample portfolio that included investments plus whole life insurance and an annuity product versus a model that involved purchasing term insurance and investing the difference. The results: After 30 years, a comprehensive financial plan generated 5% higher overall portfolio values, 16% higher retirement income and 27% higher inherited value at age 95.

With greater certainty created through a comprehensive financial plan, affluent investors can more comfortably assume the risks of their desired investment portfolio, in pursuit of higher returns. As advisors communicate with their clients, it will be important to explain why this holistic approach can be the pathway to reduced anxiety and better prospects for success and financial security.

Aditi Javeri Gokhale is Chief Strategy Officer, President of Retail Investments and Head of Institutional Investments at Northwestern Mutual.