Client confidence high on heels of ‘Trump bump’
Clients’ risk tolerance rose, boosted by the election of Donald Trump, advisers said in this month's Retirement Adviser Confidence Index — Financial Planning's monthly barometer of business conditions for wealth managers.
"We're calling it the Trump bump!" one adviser wrote.
The index overall gained a modest 1.1 points to 56.6, helped by growing optimism. The client risk tolerance measure rose 10.2 points to 66.2, putting the metric comfortably into positive territory. It rose almost 20 points the previous month. Advisers still credit the U.S. election with the rise in confidence and risk appetites.
Still, some advisers said they are trying to keep client exuberance at bay. "We didn't make a whole lot of changes other than scaling back international positions, specifically emerging markets," said one adviser. "Clients' risk tolerance appears to have increased, as is typical when unwarranted euphoria captivates the market without any fundamental changes in the underlying securities."
As clients became more eager to invest, advisers noted a boost in retirement saving. Dollar contributions to retirement plans rose 4.4 points. Advisers also raised their fees, reporting a 2.4-point bump in what they charged.
"We acquired more assets under management. That, coupled with moving money from cash to equities, caused the fees to be higher," one adviser said.
Despite the optimism, some advisers reported their clients were nervous about the Trump win. Others noted it was affecting clients’ investment decisions. Many advisers reported moving away from global assets. As one adviser wrote: "Since Trump's victory, more and more clients are pro-U.S. [They have] uncertainty about international [assets] and how those markets continue to look unfavorable."
The Retirement Adviser Confidence Index is composed of 10 factors — including asset allocations, investment product recommendations, economic and risk factors, taxes and planning fees — to track trends in wealth management. RACI readings below 50 indicate deteriorating business conditions, while readings over 50 indicate improvements.
RETIREMENT READINESS INDEX SHOWS HEALTH COST CONCERNS
This month’s index also features Financial Planning’s retirement readiness assessment, which asks advisers to track their clients’ preparedness. The analysis tracks factors including retirement status, income replacement ability, dependence on Social Security and vulnerability to big economic shifts.
Health care costs continue to be a top concern for advisers, particularly concerning ultrawealthy clients. Advisers reported that 60% of their ultrahigh-net-worth clients' retirement readiness could be compromised by a hike in care costs.
Some respondents expressed concern for their clients' current outlays. "Clients are struggling with health care expenses," the adviser wrote. "Many employers are requiring more employee contribution."
Another adviser said concerns were also generational. "Health care costs for those under 65 [are] a major concern."
Following the Fed's decision to hike interest rates, advisers are anxious to see how the bump will affect their clients' ability to save -- particularly those in the mass-affluent category. However, some clients may not be aware of those worries. One adviser wrote: "Interest rates continue to be worrisome. This worry is felt more by my fellow advisers than it is our clients."
Respondents said less than half of ultrahigh-net-worth clients would be somewhat to extremely vulnerable in the event that interest rates rise significantly. More than half of high-net-worth clients would be affected.