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Investors take stock — lots of stock

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Client funds are shifting into stocks as market turbulence has created buying opportunities and rebalancing strategies have kicked in, advisors say.

Flows into equities jumped sharply, according to the latest Retirement Advisor Confidence Index — Financial Planning’s monthly barometer of business conditions for wealth managers.

The component tracking the amount of client assets used to buy stocks and stock funds surged 19.9 points to 60.5, its highest level in a year. Readings below 50 indicate a decline and readings above 50 indicate an increase.

The rebound comes as healthy employment figures and relatively reassuring corporate earnings have eased fears about an imminent recession. One advisor says clients are operating under “the feeling that market has hit a short-term bottom and headwinds have lessened.”

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Lower valuations have also exposed tempting entry points. One advisor says, “Most clients consider the pullback to be a buying opportunity.”

Activity to preserve risk profiles and allocations among asset classes has been a major force behind the flows into equities.

Another advisor says that equity exposure jumped “simply due to rebalancing of client portfolios.”

The index component tracking flows into cash remained in negative territory at 47. The component tracking the amount of client assets used to buy bonds gained 1.6 points to 52.1.

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Advisors also say that some clients have been pulled into stocks by periodic rallies and the instinct to follow momentum. “The market rebounded and people saw opportunities to get more involved,” one advisor says.

The jump in the stock flow component was the biggest factor behind a 7-point gain in the composite RACI to 52, its first positive reading in four months. In addition to asset flows, the composite tracks client risk tolerance, investment product selection and sales, planning fees, new retirement plan enrollees and client tax liability.

The composite was also buoyed by a favorable move in the component tracking the dollar amount of contributions for all retirement plans, which gained 4.5 points to 58.6.

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Advisors say that seasonal factors associated with tax season are now coming into play, adding to automatic contributions that have remained steady throughout recent volatility as clients focus on preparing for retirement. “My clients have been with me through many stock market cycles and therefore they are trained to take a long-term view,” an advisor says.

The index component tracking the number of retirement products sold increased 2.2 points to 53, and the component tracking fees for retirement services gained 4.5 points to 49.8.

Despite the rotation into stocks, advisors say clients remain uneasy about a wide array of risks that threaten to end an economic expansion now in its tenth year.

“Clients have been unnerved by the one-two punch of the market drop in their last statements and the government shutdown,” an advisor says.

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Overall, the index component tracking client risk tolerance remained in negative territory for the fifth consecutive month at 43.2.

One advisor says, “Clients are nervous, but we say stay the course.”