© 2019 SourceMedia. All rights reserved.

Client confidence soars as stock market finds footing

Sponsored by

Advisors are noticing their clients’ confidence rebound as the labor market strengthens, trade tensions ease and a rocky fourth quarter moves farther away in the rear-view mirror.

Risk sentiment recovered sharply after being hammered by stock volatility and a rogue’s gallery of economic concerns late last year, according to the latest Retirement Advisor Confidence Index — Financial Planning’s monthly barometer of business conditions for wealth managers. The index’s risk tolerance indicator jumped 13.8 points to 57, returning to expansion territory for the first time in six months.

Fears about slowing global growth and self-inflicted wounds have receded for now, both after the end to the partial government shutdown and President Trump’s decision not to go forward with a significant increase in tariffs on Chinese imports. Advisors also point the Fed’s shift toward a more accommodative path for interest rates as a major factor in soothing their clients’ nerves.

“Confidence levels are noticeably higher than the previous few months,” one advisor writes.

Mostly, however, advisors say their clients’ improved sentiment may reflect recency bias following better stock performance. “Markets are up, so confidence is up,” an advisor says.

Advisors also note clients have started to contextualize recent ups and downs. “The fourth quarter decline in stocks gave clients some pause,” an advisor says. But reminding them “that 2016 and 2017 were steady increases — which was unusual — and that overall 2018 wasn’t unexpected or not planned for calmed many fears.”

RACI-April 2019-RISK

Improvement in risk sentiment was the biggest driver of the 2.6-point gain in the composite RACI to 54.6. In addition to risk tolerance, the composite tracks asset allocation, investment product selection and sales, planning fees, new retirement plan enrollees and client tax liability.

The component tracking the amount of client assets used to buy stocks rose 1.6 points to 62.1 — its highest level in more than a year —reflects the “risk on” mood, advisors say, as price gains draw investors into the market.

Rotation into equities is consonant with positive outlook among some advisors. “Recovery after 2018’s fourth quarter has been steady, and we have reduced client cash allocation accordingly,” an advisor says. “Instead of holding 24-36 months of cash for retirees it’s back to 18-24 months.”

Client flows into cash have also been strong, as some clients lock in gains and rebalancing formulas dictate a reduction in stock positions. “When the market was down, there was buying opportunity,” an advisor says. “But when it goes up so quickly, we need to rebalance to keep aligned to asset allocation as set forth in” investment policy statements.

The index component tracking flows into cash gained 6.9 points to 53.9.

Readings on overall retirement plan flows were healthy, with the component tracking the dollar amount of contributions adding 5.3 points to 63.9. The component tracking the number of products sold rose 3.4 points to 56.4. Both measures exceeded their year-ago levels.

In addition to seasonal factors such as deadlines for contributions to tax-protected accounts and profit-sharing distributions, advisors say that favorable market performance is playing a role. “The market was looking stronger since the end of 2018, so people were getting motivated to contribute more,” an advisor says.