Clients squirrel away more in retirement plans

Sponsored by
Register now

Clients are flocking to equities with renewed confidence and a whetted appetite for risk, channeling more money into retirement plans, according to the latest Retirement Advisor Confidence Index — Financial Planning’s monthly barometer of business conditions for wealth managers.

"A bit of strength in the market combined with expectations of a trade deal getting done and a subsequent pop pushed assets back to equities after some respite in fixed income," an advisor says.

Client risk tolerance has surged and allocations to cash and equities have also climbed.

The component of the retirement index that tracks allocation of client assets toward equity-based securities posted a score of 64.8 in April, up from 60.3 in the same month in 2018, and up from 58.6 in March, making it the largest increase of the year. RACI scores above 50 denote an increase, and scores below 50 signify a decline.

Advisors cited a variety of factors that underpinned increased interest in stocks, including strong corporate earnings, the Fed’s decision to hold fast on interest rates and a crop of new initial public offerings.

All told, the composite index, which tracks cash flows, asset allocation, fees and risk tolerance, among other factors, ticked up to 55, up from 52.8 a year earlier and from 53.5 the month before the biggest increase in three months and a return to expansion territory after a dip the previous month.

"Almost everything is higher due to [the] increase in markets," one advisor said.

Several advisors noted the strong seasonal impact on retirement planning, as clients paid into their plans ahead of the tax filing date.

"April was tax filing deadline, so many clients took advantage of retirement plan funding before April 15," one advisor said.

"We opened a lot of IRAs and SEPs for tax reasons," another advisor said, noting that investors had "higher confidence in domestic equities and rates went down and were less excited to reinvest at those rates."

Advisors reported a slight month-to-month downtick in fees. Still, the mark of 54.5 represented an increase from 52.9 last year.

Clients' attitudes toward risk were one of the most striking movers in the index, soaring to 60.8 in April — the highest mark since late 2017 — up from 45.2 a year ago, and 54.2 during the previous month.

"Clients felt more willing to take on risk," one advisor said. "They wanted to get back into equities after the downturn to end 2018. It was only a matter of time before the markets recovered and thrived."

Another advisor opined that some clients saw the December downturn as the "'correction' we had been waiting for." With that out of the way, the advisor said, they felt more confident heading into the spring.

At the same time, advisors expressed some uncertainty going forward, and some clients are already worrying about the next market downturn.

The allocations of client assets to cash showed an increase, at 55.2, up from 51 a year ago, and 51.7 in April. One advisor reported that clients were holding more cash "in anticipation of a market correction."

"Optimism around the markets has increased among our clients with the run up so far in 2019," another said. "However, I caution that this continued growth is unsustainable."

Retirement planning Tax planning Risk Stocks Interest rates RIAs Fee-based compensation Federal Reserve RACI