After months of surging markets and hopeful signs that the pandemic might be abating, some clients are getting nervous as the Delta variant of the coronavirus looms, according to the Retirement Advisor Confidence Index, Financial Planning's monthly barometer of business conditions for wealth managers.
That's raising worries that the economy could be heading back into the dark days of 2020 when millions of businesses had to shut their doors or dramatically alter their service models due to lockdown orders.
"People are becoming more concerned about the stock market, the economy and potential of more pandemic restrictions," one retirement advisor s.
Key indicators of retirement confidence ticked down in July's RACI survey. Despite those modest declines, investments in equities and clients' risk tolerance remain relatively strong.
The component of RACI that tracks retirement savings invested in equities checked in at 65, down 0.3 points from June but up 2.7 points from last year.
RACI scores above 50 indicate an increase in confidence, while scores below that mark signify that confidence is dropping. The RACI equities measure has been above 60 every month since October 2020.
But some investors appear to be responding to what one advisor calls "a late-stage bull market and perceived increasing volatility." They’re looking to bank their gains and move money into steadier asset classes.
"Stock valuations are higher, so we are seeing higher trends toward cash or fixed income," another advisor said.
The RACI component that follows cash allocations posted a score of 53.8 in July, up 5.5 points from the previous month and the highest mark since December 2020.
Some advisors suggested that clients are responding to—or at least nervous about—proposed changes to tax laws, including the prospect of a hike in capital gains rates.
"The potential tax law change is definitely driving a lot of conversations on tax strategies, of which retirement accounts are one," one advisor said.
Other advisors cited ongoing concerns about inflation as a drag on retirement confidence.
Even with all those worries, advisors report that retirement confidence remains fairly strong. The composite RACI score posted a mark of 55.1 in July, up a fraction of a point from June and up 1.5 points from the year earlier.
Advisors said that their clients were feeling a little more cautious about their retirement pictures, however. The unit of RACI that tracks risk tolerance came in at 55.3, down 2.5 points from June and off almost 4.5 points from the high mark of the year back in April.
"Clients have been a bit more conservative lately, especially those who are in a good financial position already," one advisor said, echoing a stay-the-course message shared by many other advisors polled for July's RACI survey.
"The market has been up, and they have wanted to take some profits and lower their risk threshold," the advisor said. "Overall, we have continued to encourage stock market investment for long-term investors."