It’s not exactly going out on a limb to think “market volatility” will increase over the next year, as evidenced by the fact that two-thirds of investors (66%) and more than half of Registered Investment Advisors (RIAs) and fee-based advisors (56%) think it will happen.
This according to a new special report from Nationwide Advisory Solutions, “Safe Havens in an Uncertain World,” from the fifth annual Advisor Authority Study of more than 1,600 RIAs, fee-based advisors and individual investors.
As uncertainty is on the rise, the report finds investors and advisors are recalibrating their financial outlook. For the first time in four years, investor and advisor optimism both declined at the start of 2019.
Investor optimism fell seven percentage points, to 55% in 2019 from 62% in 2018, and advisor optimism dropped eleven percentage points, to 55% in 2019 from 66% in 2018.
Nationwide says the report’s 360-degree view on the top factors causing financial concerns, impacting portfolios and driving volatility—and the top proactive strategies to meet clients’ complex needs—can help RIAs and fee-based advisors compete more effectively in times of rising uncertainty.
“More than a decade after the Financial Crisis of 2008, concern about volatility is again top of mind for advisors and investors alike, and uncertainty is on the rise,” said Craig Hawley, Head of Nationwide Advisory Solutions. “Our latest Advisor Authority Special Report uncovers the key factors that RIAs and fee-based advisors need to understand investors’ top concerns, confront the complex dynamics of a challenging market and create the ‘safe haven’ investors seek—unlocking greater loyalty and attracting new clients to drive greater growth.”
The opportunity is substantial. In the face of rising uncertainty, the number of investors who say they have an advisor is on the upswing, increasing eleven percentage points in four years, to 62% in 2019 from 51% in 2016.
Understanding Outlooks and Concerns
Optimism was high leading into 2018, fueled by the prospects of a finance-friendly tax plan, the Trump administration’s promise to cut regulation and a business-friendly majority in both the House and the Senate.
But investor and advisor optimism both declined leading into 2019 as uncertainty has prevailed—aggravated by uncertainty around interest rates, the less promising reality of tax-reform, the growing partisan divide and an escalating trade war with China (interestingly, stocks rallied today on new hopes for a U.S.-China trade deal after President Donald Trump said he will meet with his Chinese counterpart, Xi Jinping, at the upcoming G-20 summit).
Now investors, RIAs and fee-based advisors are cautious, yet clear-eyed. Nearly six in 10 investors (58%) and more than half of RIAs and fee-based advisors (54%) are concerned about a U.S. economic recession over the next 12 months. Over half of investors (54%) and RIAs and fee-based advisors (56%) are concerned about a U.S. bear market over the next 12 months.
At the same time, they are focused on practical matters impacting their wallets and their portfolios. Investors say cost of health care (33%) is their No. 1 financial concern, followed by taxes (31%), protecting assets (27%), saving enough for retirement (23%) and inflation (16%).
RIAs and fee-based advisors also most commonly cite cost of health care (27%) as their clients’ top financial concern, followed closely by taxes, protecting assets and saving enough for retirement in a three-way tie for second place (all at 26%). Rising interest rates are a close third at 24%—and as other findings from this survey show, interest rates are a recurring concern for RIAs and fee-based advisors.
Causes of Volatility
Without a doubt, some investors are losing sleep over market volatility. More than one-fourth of investors (28%) say that market volatility keeps them up at night when they think of protecting their assets and saving enough for retirement (30%).
Headlines about lawmakers at home and abroad are top of mind—and impacting the markets—according to investors. Gridlock inWashingtonis the No. 1 factor most likely to cause volatility, selected by nearly half (45%) of investors. Global instability is second, selected by 38% of investors, and U.S. economic performance is third, selected by 32%.
RIAs and fee-based advisors have a somewhat different viewpoint. According to advisors, interest rates are the No. 1 factor most likely to cause market volatility, selected by one-third (33%). This is followed by gridlock inWashingtonand U.S. economic performance, tied for second at 30% and global instability is a close fourth at 29%.
Managing Volatility
As noted, the number of investors who say they have an advisor is growing year over year. Asked to identify what would increase the likelihood that they would work with an advisor over the next 12 months, over half of investors (54%) say market volatility is the No. 1 scenario.
Asked to identify the most important benefit of working with an advisor when markets are volatile, investors with an advisor say that helping them stay focused on long-term goals (21%) is No. 1. This is followed closely by helping them make more informed decisions (20%) and protecting their assets against market risk (20%).
With volatility on the rise, the vast majority of RIAs and fee-based advisors (88%) have a strategy to protect their clients’ assets against market risk. While only 65% of investors in 2019 say they have a strategy to protect their own assets, this is still up eight percentage points from just 57% of investors in 2018.
To protect assets against market risk, nearly two-thirds of advisors (62%) and investors (63%) agree that diversification is their most utilized solution. However, RIAs and fee-based advisors are more focused than investors on a diverse range of solutions—including fixed annuities (53% vs. 30%), fixed index annuities (48% vs. 23%) and liquid alternatives (44% vs. 26%).
To learn more about the factors driving key concerns and top proactive strategies, financial professionals can download the Advisor Authority 2019 Special Report, “Safe Havens in an Uncertain World” at: https://know.nationwideadvisory.com/AdvisorAuthority2019Ch1
For additional insights, financial professionals can also download the latest Advisor Authority 2019 infographic at: https://know.nationwideadvisory.com/AdvisorAuthority2019Ch1Infographic
The fifth annual Advisor Authority study features a special focus on the most successful advisors and the most affluent investors. These latest findings from the fifth annual study are part of an ongoing series of special reports that will be released through the first quarter of 2020.