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Planners urge discipline as clients chase gains

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Buoyant stock markets and strong economic fundamentals have pushed client risk tolerance higher, according to Financial Planning’s latest Retirement Advisor Confidence Index.

Investor confidence — or at least the instinct to get in on the upswing — accelerated the pace of equity inflows. And growth in assets under management, in turn, pushed retirement service fees higher.

Those factors were the strongest in generating a .5 point monthly gain to 54.1 in the composite index, which tracks asset allocation, investment product selection and sales, client risk tolerance and tax liability, new retirement plan enrollees, and planning fees.

Readings above 50 indicate improving business conditions; below 50, deterioration.

The index’s risk perception component has been teetering in recent months. The latest gain of 1.9 points to 55.7 followed a 3.7-point dip. But the trend line has stayed above 50 since November, indicating uninterrupted increases in risk appetite, albeit of different magnitudes.

“Market tranquility continues to bring people off the sidelines or seek higher returns,” one advisor says.

To be sure, some advisors say that clients still harbor some worries about a possible correction, lower odds for a major tax cut and the prospect of a fiscal train wreck over the debt ceiling.

More immediately, some planners say clients are falling prey to ill-advised momentum plays by “jumping on the train” and “chasing gains.” Numerous planners reported that they are urging clients to be disciplined and counseling defensive moves into cash and bonds. “I am advising my clients to take some position in cash, and to expect a correction probably of 10% to 15%,” one planner says.

With stock market gains lifting clients’ net worth, however, there is plenty of money in motion. Flows in equities, bonds and cash instruments continued to grow, with the RACI components tracking them all remaining comfortably above 50. The equity flow component was the strongest, with a 1.8-point increase to 61.3.

Many advisors say increases in client wealth – and consequently assets under management – were also behind the favorable trend in wealth management income. The RACI component tracking fees charged for retirement services rose for the second consecutive month, reaching its highest level in more than a year at 56.8.

Many advisors continue to chafe under the new fiduciary rule, however, citing burdensome paperwork and a transition to new fee structures that are creating challenges for client retention.