“Bah, humbug!” A new survey finds fewer advisors are holding a positive market outlook than at any time over the past five years.
According to Russell Investments, advisor sentiment has only continued to fall from its 87 percent high early in 2014 to 64 percent today, and more than half of advisors surveyed (56 percent) cited concerns about future market volatility.
As advisors and their clients respond to a challenging macro environment, advisors’ sentiment is matched by client uncertainty (53 percent), including concerns sparked by China and emerging market economies as a whole. These concerns may be having an outsized impact on advisor-client conversations and serving as a distraction from long-term planning efforts.
“We were somewhat surprised that advisors’ positive outlook about the next few years is on par with their 2012 sentiments, but we attribute some of this trepidation to the anticipated rise in interest rates as well as recent market volatility generated by concerns about China and emerging market economies,” Phil Rogerson, managing director of consulting and product for Russell Investments, said in a statement. “It’s key for advisors to not let these concerns derail their efforts to have long-term planning conversations with clients based on their goals and needs for the future.
More direct conversations needed
Nearly one-third of advisors (30 percent) claim that as many as half of their clients are on an insufficient path to maintain enough assets to support their preferred lifestyles in retirement. More than half (55 percent) of advisors cited setting reasonable expectations around spending policies as one of their key challenges, and an additional 44% found similar struggles in maintaining the sustainable spending plans they do create with clients, given factors such as increasing life spans and escalating healthcare costs.
“Instead of focusing on short-term market events, advisors need to remember to center conversations on client goals,” Rogerson added. “Clients may call with apprehensions about the market, but advisors need to be able to defuse these concerns and move the conversation toward one that instead weighs the current progress of the client’s portfolio against their desired outcome. This way, actions stay connected to the clients’ individual needs without jeopardizing their future financial security.”
Chasing a responsible level of yield
Only 18 percent of advisors said that they don’t believe yield-focused investment strategies (or strategies that rely on dividends and interest alone to provide income) are a strong option for some or all of their clients. Yet, while many advisors see these strategies as viable options, many also noted potential deterrents including capital erosion due to inflation (53 percent of advisors) and higher credit risks (40 percent). Only 11 percent of advisors would recommend them to the majority of their clients.
“When it comes to the challenge of generating income, advisors should routinely evaluate the risks and potential opportunities of the investment strategy, as well as encourage clients to account for factors such as the balance of long- and short-term income needs, global diversification, risk and adaptability,” Rogerson concluded. “Our view is that the best way to manage these four factors is to take a total return approach to portfolio management.”
Advisors seem to agree. Of the advisors who said that yield-focused strategies were not a good option for all of their clients, more than two-thirds (70 percent) would recommend a total-return approach which looks at the sum of interest, dividends and capital appreciation when considering the ability to generate income.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
