Clients are turning away from equities and channeling less money into their retirement plans as their appetite for risk plunges, according to the latest Retirement Advisor Confidence Index, Financial Planning’s monthly barometer of business conditions for wealth managers.
“A few clients have expressed increasing concern over how the changing events in the world may affect the future returns from their investments,” one advisor said, while another cited troubled U.S.-China relations. “Continued geopolitical and trade tensions caused many business owners to be cautious about expanding retirement plans,” the advisor said. “Our outlook is still cautiously optimistic longer term.”
But in the short term, investors’ risk tolerance plunged nearly 19 points, the biggest single-month drop since February 2018, according to the most recent RACI survey.
The component of the retirement index that tracks risk tolerance checked in at 42, the lowest mark since December, when risk tolerance fell to 25 amid a substantial market correction. RACI scores higher than 50 indicate an increase, while scores below that mark signify a decline.
Several advisors cited the ongoing trade hostilities between the U.S. and China as contributing to clients’ skittishness. “China turmoil has us a little more cautious about the market,” one retirement planner said. “I feel the biggest issue right now is the seemingly escalating tariff situation with China,” said another advisor.
In all, concerns over market volatility and the fallout from trade wars sent investor confidence down, with a composite RACI score of 50.1, off five points from the previous month and the lowest score since December. Investor confidence has been volatile throughout 2019, with no two-month stretch recording either consistent increases or decreases.
But the most recent month was a pronounced downtick, both in overall confidence and specific asset movements. The RACI component that tracks equity spending tumbled 10.7 points to 54.1, the largest single drop since October 2018. Spending on target-date funds was down as well, off 3.9 points to post a score of 46.1.
Overall, the dollar amount that clients contributed to their retirement plans in any form fell 8.9 points to 55.2, the lowest score of the year and the biggest monthly drop since May 2018.
Advisors can struggle to keep clients calm when the markets are in flux.“More plan participants are nervous as volatility picks up,” one advisor said. “We emphasize to continue contributions and take advantage of the volatility and think long term.”
Many advisors say they are counseling clients to ignore the headlines as they contemplate their retirement plans – though that can be easier said than done. One advisor urges those clients for whom retirement is still well down the road to not focus on short-term market jitters.
“Many people take the current economic news cycle into account when investing for retirement,” the advisor said. “They should not be doing so unless they are close” to retirement age.