Retirement savers ‘cautiously optimistic’ about COVID-19. Now there's an election
Clients are feeling a slight boost of confidence when it comes to their retirement plans these days, with advisors reporting a guarded optimism about their emergence from the coronavirus pandemic, according to key measures of retirement confidence in the latest Retirement Advisor Confidence Index, Financial Planning's monthly barometer of business conditions for wealth managers.
"Investors are cautiously optimistic that the COVID pandemic will be brought under control, but their confidence level is 'two steps forward, one step back' depending on the COVID news headlines of the day," one advisor says.
In July, advisors in the latest survey reported a healthy uptick in overall contributions to retirement plans. The RACI component that tracks dollar contributions checked in at 57.3, up 5.8 points from the previous month. Although that is down one point from the same period last year, it marks the third consecutive month of growth in the category after contributions bottomed out in April.
COVID-19 “presented a buying opportunity in equities that allowed for cash to be put to work and rebalancing into equities," according to another advisor in the survey.
The story was similar when advisors were asked about the number of retirement products they have been selling to clients. That metric saw a score of 55.3, up 4.8 points from the prior month and up 2.1 points from the year-earlier period. Like overall contributions, this month's tally for products sold extended the growth streak to three months.
RACI scores above 50 denote an increase in confidence, while scores below that level indicate a decline.
Overall, the July composite RACI score checked in at 53.6, up 1.4 points from June, and up four points from last year. The composite hit a low for the year in March when the reality of the pandemic was first becoming clear, but has since posted consistent monthly increases.
While uncertainty about the virus and the related economic impact remains high, many advisors report that clients are feeling more emboldened about investing. The RACI component that tracks risk tolerance notched a score of 55.3 in July, up 3.3 points from June — the third straight monthly increase — and up nine points from last year.
"People are becoming more confident in the economy again, whether merited or not, and that has been impacting how people are allocating their money," according to one advisor.
Some of that confidence stems from the phased economic reopenings that have brought many clients out of the unemployment lines, helping both to drive new enrollments in employer-sponsored retirement plans and increase contribution levels to existing plans.
"More people are coming back to work, and those that had reduced contributions to the plans are now reinstating higher contribution rates," an advisor says.
The RACI component that tracks new enrollments in employer plans posted a score of 48.3, up 5.3 points from the previous month, but down 6.3 points from the same period last year.
Despite the monthly uptick in risk tolerance, apart from ongoing anxieties about the coronavirus, many advisors report that clients are beginning to worry about how the markets will respond to the upcoming presidential election.
"Coronavirus and an election year make the markets hard to predict, and clients are wary," one advisor says.
Another describes clients' attitudes as a mix of "continued market optimism tempered with uncertainty."