Worries about a potentially damaging trade war, among other risks, are keeping clients unsettled, advisors say.

There is the seesawing fight between protectionist hardliners and more mainstream officials in the Trump administration. Off-again, on-again engagement with North Korea. Renewed concerns about the integrity of the euro. “Clients are more anxious with all the geopolitical risks,” one advisor summarizes.


Overall, clients’ appetite for risk has continued to erode, according to the latest Retirement Advisor Confidence Index — Financial Planning’s monthly barometer of business conditions for wealth managers. At 47.6, the component tracking risk tolerance registered its fourth consecutive month in negative territory. Readings below 50 indicate a decline and readings above 50 indicate an increase.

“I believe that we will continue to see increased volatility in the marketplace this year — much higher than 2017,” one advisor says. “We are adjusting our investment allocations accordingly.”

The negative trend for risk tolerance is helping to keep the composite relatively low at 52.2, a drop of 0.6 points. In addition to risk tolerance, the composite tracks investment product selection and sales, client tax liability, asset allocation, new retirement plan enrollees and planning fees.


The slip in the composite was also heavily influenced by an 11.2-point slump in the component tracking contributions to retirement plans, to 50.5 and a 7.1-point drop in the component tracking the number of retirement products sold, to 50. Advisors largely attribute those declines to a seasonal pattern where contributions and sales typically plummet after a rush of client activity associated with tax season. One advisor says the “post-tax season drop-off was expected.”



Still, the 50.5 reading for contributions was the lowest since RACI was launched in the middle of 2012, and the reading of 50 for sales was the second lowest in that component. “More clients are less willing to start new retirement plans due to stock market volatility,” one advisor says.

To be sure, some wealth managers say that clients are taking the volatility in stride as long as economic fundamentals remain sound, and that price swings are creating buying opportunities.

“Volatility in the market is a popular topic with my clients, but they are comforted in knowing that their portfolios are allocated so as to dampen some of that volatility,” one advisor says.


Other advisors observe that clients are reacting to the environment differently, and report that they are performing careful reviews of individual positions and attitudes. “Risk tolerance has been all over the spectrum,” an advisor says.

Advisors also say that clients are divided about how the new tax law will impact the economy, and are struggling to understand what it means for them personally. One advisor says, “Clients still don’t know how the new tax reform will affect them but had to start planning anyway.”

The RACI component tracking clients’ annual tax liability, which has been gyrating since the tax bill was enacted in December, swung sharply into positive territory, jumping 9.7 points to 54.2.

Harry Terris

Harry Terris

Harry Terris is a Financial Planning contributing writer in New York. He is also a contributing writer and former data editor for American Banker.