Client confidence, risk appetite roar back as markets recover from coronavirus

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Advisors are witnessing a drastic change in clients' attitudes as retirement savers shake off — or at least factor in — the coronavirus pandemic’s effect on financial markets.

In the latest Retirement Advisor Confidence Index, Financial Planning's monthly barometer of business conditions for wealth managers, advisors described a feeling of getting back to normal, with client confidence on the rise amid a dramatic resurgence of equity purchases, suggesting that the rebounding markets had buoyed clients' retirement plans.

"Clients seem to have a greater risk appetite compared to a few weeks earlier," according to one advisor. "They have been looking for more advice and looking to do something through this period rather than sitting idle."

Another went so far as to say that "it was back to business as usual" in the most recent period.

The resurgence in equity-based securities as part of the retirement mix was especially striking. The component of RACI that measures investments in that asset class checked in at 61.5, up 15.3 points from the previous month, and up three points from the same period a year earlier.

"People did not want to miss more of the market recovery and wanted to position more cash into equities," one advisor says.

RACI scores above 50 indicate an increase in confidence, and measures below that mark signify a decline.

Overall, the composite RACI score for the most recent period was 52.2, up seven points from the previous month, marking the first score above 50 since January.

"I feel the changes relate to how quickly the market has bounced back, or priced in, the virus situation," one advisor says.

Indeed, key RACI components were up across the board, often posting dramatic month-to-month spikes.

The element of RACI that tracks overall dollar contributions to retirement plans checked in at 51.5, up 8.8 points from the previous month, but still off 7.5 points from the same month a year earlier.

The story was similar with the number of retirement products advisors reported selling in the most recent period. That RACI metric checked in at 50.5, up 10.6 points from the previous month, while off 5.6 points from the year-earlier period.

Second wave?
In both overall dollar contributions and products sold, the most recent RACI scores were the highest posted since February, before concerns about the coronavirus became widespread.

"More of our clients opened their businesses and employees funded their 401(k) plans," one retirement advisor says, noting that many employees had been furloughed in the spring and some were just returning to work.

The advisor continued: "I believe our clients are somewhat optimistic about the markets, but think we cannot advance much more until the economy really rebounds."

Several advisors say their clients are becoming increasingly willing to take on more risk in their retirement planning. The component of RACI that tracks clients' risk tolerance spiked 13.9 points to 52, the first score above 50 in that category since December 2019.

Advisors variously attribute that phenomenon to markets rebounding and the initial shock of the pandemic wearing off, though some are cautioning clients that events like a second wave of COVID-19 could erase any gains in areas like equities.

"People seem to be getting comfortable with the new normal, which is making them more optimistic," one advisor says. "People don't seem to want to pay any attention to the indications of long-term economic ruin on the horizon and are now more comfortable moving forward with investments."

RACI Retirement readiness Coronavirus RIAs Investment products Markets and indexes Equities