Everyone is an investor — now they just need financial advisors

The pandemic put many Americans in unusual financial situations.  

Some cut back on spending because of lost income. Some saved more when restaurants, theaters, and other forms of entertainment closed. And then some began day trading to pass the time and make a quick buck. 

Now, as the pandemic fades and states reopen, financial advisors may be asking whether these habits will persist. The short answer, yes. These new realities call for a similar shift in how advisors approach investment management and financial planning. 

A recent study from Charles Schwab found that nearly two-thirds of Americans placed a higher priority on saving than spending over the past year. Many saw the pandemic as a wake-up call for how unprepared they were to withstand a financial emergency. Did they have an emergency fund? Were they saving for retirement? Was paying down debt a priority? The overwhelming answer was no or not enough. 

As a result, many Americans redirected money set aside for vacations and dining out toward shoring up their finances. Household debt and credit data from the Federal Reserve found that Americans shed an estimated $160 billion in revolving debt last year, dipping to levels not seen since September 2017. It has remained below that mark since.

The good news is these good habits should outlast the pandemic. Nearly 80% of savers from the Schwab study said they planned to save more in 2021, with some of that additional money going to creating a comfortable rainy day fund or paying down debt. 

To some extent this is already happening. The personal savings rates—which the US Bureau of Economic Analysis defines as the proportion of income that households save—topped 25% in March 2021, the fourth time the figure eclipsed 20% in the past 50 years. The other three occurrences were also recorded after the pandemic began.  

It’s clear that Americans have come out of the pandemic with more financial discipline. They want to save more and have been. They want to pay down debt. They want to invest more for retirement.

Many even want to invest outside of their retirement accounts for other financial goals. The same Schwab data found that 35% of Americans are looking to open and invest in a non-retirement account after the pandemic. 

But there’s a problem: the new wave of investors born during the pandemic may have different sets of standards for how they save and how they invest. As the data suggests, their approach to saving has matured; it’s all about spending less and saving more. But as investors, their approach can sometimes border on erratic and flippant. 

All last year, many investors, perhaps propelled by social media and maybe a bit of boredom, poured their stimulus checks and additional cash into speculative assets. This behavior fed the roller coaster movements in meme stocks, SPACs, and NFTs, and in some cases, wiped out people’s life savings. Unfortunately, there’s no sign of this trend abating. 

A new study from Betterment suggests that investors are likely to continue day trading after the pandemic ends, with some claiming they might day trade more often. According to the survey, the biggest driver of this risky behavior was a desire “to make more money in a short period of time.”

The sweeping changes in American’s saving and investing habits are a stark reminder of the importance of a financial advisor. Even though more people took control over their finances, when it came time to take the next step, some squandered the opportunity by investing in meme stocks or following other Reddit driven investing trends. 

For advisors who may want to attract new clients or connect with their existing ones, there are some options for reaching this determined but unsure group.

Holistic financial planning

Many took a positive first step in becoming financially independent; they paid down debt, reduced their expenditures, and ramped up their retirement investments. But they did so without a financial plan. A study from Northwestern Mutual found that nearly 1 in 5 adults did not have a financial plan before the pandemic. Even those who did plan ahead and had emergency savings were not prepared to weather the financial crisis. What this says is DIY financial planning and old personal finance maxims may no longer work. Advisors need to give clients financial plans customized just for them—whether that is having an eight-month emergency fund rather than the typical three to six months or creating an investment plan that prevents them from trading meme stocks.

Technology-first approach

Creating a custom financial plan for one client may be easy. Do that for a dozen clients or more, and an advisor may stop picking up the phone. By adopting tech-powered tools, advisors can create custom financial plans in a matter of seconds. Modern wealth management tools will help in not only the creation process but also the management over time. So no matter where a client is in their life, technology puts them in the best position to reach their goals.

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The new spending, saving, and investing habits developed during the pandemic are here to stay, and it's now up to financial advisors to meet their clients, and prospective ones, where they are. An approach grounded in sound financial planning and modern technology can help advisors plan for today and what’s ahead.