Tracking investor optimism, and its decline, from 2017 to the presentNationwide Advisory Solutions annual report, Advisor Authority, again taps into the sentiments of the advisory community to define and clarify emerging trends. Reprinted with permission. Read the full report here.
Markets hate uncertainty. It drives volatility and ignites concerns. Over the past several years, uncertainty has been ever-present. To better understand the perspectives, concerns and strategies of investors and advisors when it comes to managing uncertainty and mitigating volatility, let’s set the scene for 2019. Back in 2017, optimism was high: the market was fueled by the prospects of a finance-friendly tax plan, Trump’s promise to cut government regulation and a business-friendly majority in both the House and the Senate. The market saw record low levels of volatility with the VIX bottoming at 9.14 in November.
Then came 2018. Weakness in the tech sector, fear of rising rates and concerns about slowing growth at home and broad sent volatility soaring—with dramatic shifts in both directions. In just one month, the VIX quickly spiked from January’s low of 9.22 to February’s high of 29.06. In fact, over 50% of the ten biggest single-day gains and declines for the Dow Jones Industrial Average happened in 2018. As the year came to an end, optimism waned as the reality of the new tax reforms set in, while contentious mid-term elections widened the partisan divide and aggravated gridlock in Washington.
Likewise, ongoing tension around the globe, and the looming threat of trade wars fanned the flames of unease. Whispers of recession got louder as a strong bull market swayed.
In 2019, RIAs, fee-based advisors and the clients they serve are feeling cautious, yet clear-eyed about the challenges they face. The majority of advisors and investors expect market volatility to increase over the next 12 months, and express concerns about a possible bear market and the potential of a recession in the year ahead. At the same time, they are prepared with strategies to protect their assets and their financial future for retirement and beyond.
This Special Report will help you better understand investor and advisor perspectives, concerns and strategies for managing uncertainty and mitigating volatility. Tap into these insights to enhance profitability now—and position your firm for the future.
Excerpts from the Advisor Authority report
Understanding Investor & Advisor Concerns for 2019
In the current political and economic environment, when investors were asked to select up to three financial concerns, the top five financial concerns are cost of healthcare (33%) followed by taxes (31%), protecting assets (27%), saving enough for retirement (23%) and inflation (16%). Managing volatility lands squarely in their top 10 concerns—in a three-way tie for sixth place with generating reliable income during retirement and managing debt (all at 13%).
From the perspective of RIAs and fee-based advisors, their clients’ top concerns look somewhat different. Advisors also cite cost of healthcare (27%) as their clients’ number-one financial concern, followed closely by taxes, protecting assets and saving enough for retirement in a three-way tie for second place (all at 26%). Rising interest rates are a close third at 24%—and as this report will show, interest rates are a recurring concern for advisors.
Managing volatility is fourth at 23%—suggesting that this is also a greater concern for advisors than investors. In fact, year over year, managing volatility consistently has been of greater concern to RIAs and fee-based advisors than it has been to investors. And for investors who don’t have an advisor, concern for managing volatility is somewhat lower than for those who do have an advisor (9% vs. 15%).
Optimism Declines & Uncertainty On The Rise
In the face of rising uncertainty,
investors and advisors are recalibrating their financial outlook. Investor and advisor optimism both declined for the first time in four years at the start of 2019. Investor optimism fell seven percentage points, to 55% in 2019 from 62% in 2018, and advisor optimism dropped 11 percentage points, to 55% in 2019 from 66% in 2018. This sharp reversal could be a return to baseline levels after an anomaly in 2018, when investor optimism at the start of that year jumped 11 percentage points and advisor optimism jumped 12 percentage points.2018 came in (and left) like a lion. Optimism spiked at the start of 2018, following the solid economic performance, record highs for markets and record lows for volatility in 2017.
But as the year progressed, uncertainty prevailed— aggravated by fears of Federal Reserve rate hikes, the less promising reality of new tax-reforms, slowing growth at home and abroad, contentious mid-term elections driving the partisan divide and an escalating trade war with China. Now, in 2019 only four in 10 investors (43%) say they are optimistic about the economy’s outlook over the next 12 months, and slightly more than half of RIAs and fee-based advisors (52%) say the same. In fact, nearly six in 10 investors (58%) express concern about a recession over the next 12 months, and more than half of RIAs and feebased advisors (54%) agree.
An open letter from Craig Hawley, Head of Nationwide Advisory Solutions
Our commitment to RIAs and fee-based advisors inspired us to launch our annual award-winning Advisor Authority study, now in its fifth year. We explore the issues and innovative solutions that matter most to help all advisors at every level tap into the tremendous potential of the fee-based channel. In this latest Advisor Authority Special Report, we focus on safe havens in an uncertain world—exploring market volatility and other top concerns, as well as the strategies and solutions being used by RIAs, fee-based advisors and investors in 2019.
Over a decade after the Financial Crisis of 2008, concern about volatility is again top of mind for advisors and investors alike and uncertainty is on the rise. In this report, we’ll help you better understand the priorities and preferences of investors so you can attract new clients, enhance current profitability and build a foundation for the future growth of your firm. Looking back, 2018 was a year of opportunities and challenges. The second longest running bull market hit all-time highs, then started shifting course with historic levels of volatility and a dramatic correction. Now markets remain turbulent, as lawmakers continue to dominate the headlines, while gridlock in Washington and global instability continue to impact portfolios. Facing increasing uncertainty and volatility, the challenge of saving enough to prepare for and live in retirement is top of mind for investors and advisors alike. All while consolidation is reshaping the advisor industry, fee compression is creating greater downward pressure and asset management is becoming increasingly commoditized.
As Advisor Authority has shown, advisors today must look to the future and adapt—or be left behind. The advisors poised to succeed in the face of these challenges are those who can differentiate themselves by focusing on holistic financial planning, providing unbiased guided advice and creating the competitive advantage of a unique customer experience. Overarching everything, it is clear that the client must come first—a commitment RIAs and fee-based advisors have been making from day one.
Nationwide Advisory Solutions was built from the ground up with a singular focus on serving RIAs and fee-based advisors. We believe in the tremendous potential of the fee-based channel to drive new innovation, disrupt the status quo and transform the future of our industry. We have never stopped in our efforts to develop a deeper understanding of the challenges you face and the solutions that you need to succeed. We will continue taking the pulse of RIAs, fee-based advisors and their clients, to establish benchmarks and provide you with the actionable insights that are so important for your success. We believe you’ll find our research insightful. As always, we welcome your feedback on our findings and your suggestions for next year’s study.
Read the full report here