As 2011 draws to a close, it will be remembered as “the year of volatility” or uncertainty among investors. In this environment, they valued personal communication from advisors the most.

As 2011 draws to a close, it will be remembered as “the year of volatility” or uncertainty among investors, according to an SEI poll.

As investors faced a slowing global economy and an escalating European debt crisis this year, on 5 August Standard & Poor’s downgraded US Treasury bonds from their AAA status. In the days following and until 30 August, the S&P 500 Index averaged a 2.5 per cent move - up or down - every day, according to statistics from Vanguard.

Despite the downgrade Treasury bonds rallied and returned 2.8 per cent for August, according to the fund manager, highlighting how uncertain investors felt about markets.  

Communication, communication, communication

In this environment what investors wanted the most was more “personal communication” from their advisors, according to the investor poll, and this far outweighed their desire for “reporting” or “education”.

The volatility also had a direct impact on clients’ expectations, and many realized they are “not as risk tolerant as they originally thought,” says SEI. Over half of advisors described their clients’ state of mind as “apprehensive” this year, and managed volatility was the most popular investment strategy of the year.

It wasn’t only clients suffering this year, though, with just one-quarter of advisors saying they slept well in 2011, according to the survey. When asked what kept them awake, they were evenly divided between, “running my business”, “the markets” and “keeping my clients happy”. And when asked about issues in the US, Europe and China, the majority of advisors cited Europe as the top concern.

The following conversations dominated client conversations this year: another market correction, retirement issues, implications of the federal deficit and global instability, with global instability taking first place.

“The past few years have had a profound impact on investors and what they are looking for,” said Patrick Tucker, principal at Meridian Management in Omaha, NE.

“They aren’t just looking for more investment reports or lengthy documents explaining the current status of the financial markets. While they value these things, first and foremost they want personal communication – direct contact through calls, emails, and meetings – with their financial advisor about issues that matter like the status of their goals, personal situation and plans for the future. Advisors who step up and meet the challenge will be successful in 2012.”

Growth despite uncertainty

Notwithstanding volatile markets and concerned clients, 40 per cent of advisors said their firm grew net new assets by more than 10 per cent this year, and 12 per cent of advisors said their firm grew net new assets by over 20 per cent. To achieve this, the most useful strategy “by far” was through client referrals, the poll found.

However, some advisors took a different tack in 2011, according to SEI, with nearly half (45 per cent) preferring to focus on strengthening existing client relationships this year than growth. And mirroring the fluctuations in the markets, roughly one-third of advisors said they took “a few steps forward and a few steps back” this year.