Financial advisors are much more pessimistic now about the economy than they were in early 2011, a survey by MFS Investment Management found.

Nearly three-in-10 advisors said they were pessimistic about the outlook for the U.S. economy over the next five years, up from just 7% in February. The survey included responses from 644 financial advisors licensed for at least three years and who have at least $500,000 in annual mutual fund sales, as well as from 929 investors with a minimum $100,000 in investable assets.

The results show advisors are closing a pessimism gap with investors. In this survey, 53% of investors said they were pessimistic about the economy, up from 37% in February.

The survey also showed that investors — especially younger ones — are keeping a strikingly large share of their portfolios in cash. Overall, investors said they had 27% of their investable assets in cash. However, Generation Y investors said they had a 33% allocation to cash.

What the results point to is a real shift in investor mentality that financial planners should pay close attention to, Bill Finnegan, head of U.S. marketing for MFS, said in an interview. Children of the Depression in the 1930s were called “Depression babies,” Finnegan said. “I think what we’re seeing now are ‘recession babies.’ ”

Those younger investors have seen a fair amount of calamity in the capital markets during their adult lives, Finnegan noted. What advisors may have to get used to now, he said, is the idea that this isn’t just a cyclical mood change — it’s a more permanent shift in investor mindset toward greater caution. “Frankly, we have to catch up to that as an industry,” Finnegan said.

Need for Customized Advice

While investors may be looking askance at the stock market, they do still want financial advice, according to the survey results. About 30%of investors surveyed said their need for advice has increased over the last year, up from 21% in February.  In the most recent survey, 45% of Generation Y and 36% of Generation X investors said their need for help had grown.

Investors also want to feel their advisors are communicative. A vast majority — 69% — said they expect to hear from their advisors regularly during periods of intense market volatility.

And investors want to feel their planners aren’t giving out generic advice. About one-third of respondents said they believe most advisors recommend generic portfolios rather than customized plans. But 80% said the willingness of an advisor to tailor advice to their own specific needs weighs heavily when they’re trying to evaluate different advisors.

Another takeaway from the survey is that advisors need to spend more time speaking to each client, Finnegan said. It also means recognizing that there is this “wall of worry” that needs to be addressed because it isn’t going away anytime soon, he said.


Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access