Despite growing fear that securities prices are due for a correction, planners reported their business remains in expansion territory, according to Financial Planning’s latest Retirement Adviser Confidence Index.
Advisers said that client inflows into equities rose, but that the pace of expansion slowed compared with recent months. The composite index — which tracks asset allocation, investment product selection, client risk tolerance, tax liability and planning fees, amid other factors — also registered a slower pace of improvement as it ticked down about 0.5 points to 53.6.
Readings above 50 indicate improving business conditions.
Many advisers and their clients are apprehensive that the bull market is close to running its course. “Clients tend to get nervous at an ‘all time high’ as they quickly remember 2007-2008,” one adviser said.
Optimism
Despite some jitters, RACI components that track investments show that clients are keeping their nerve despite “a lot of headline risk” and “the craziness in Washington.”
Some advisers highlighted the self-reinforcing effect of positive market performance, while one planner said clients “expect higher rates of returns due to the recent success of the markets.”
The pursuit of higher returns has translated into riskier investment profiles for some. “Several clients I met with for reviews expressed a desire to get slightly more aggressive with their investments,” one adviser said.
Client risk tolerance dropped about 3.8 points to 53.8, but remained in positive territory.
The index’s asset allocation components suggest that clients are making defensive maneuvers, however, with bond inflows rising 3 points to 57 while equity inflows slipped. “Market all-time highs caused more money flowing into bonds,” one adviser said.
Fees charged for retirement services rose 1.1 points to 54.7. However, advisers continued to focus on the fiduciary rule, with some chafing under the new administrative burden and blaming the regulation for confusion and fee compression.
The latest RACI includes the quarterly Retirement Readiness Index, which gauges advisers’ assessments of their clients’ preparedness. The index tracks factors that include retirement status, income replacement ability, dependence on Social Security and vulnerability to big economic shifts.
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Advisers also noted a dip in their clients’ retirement savings activity after the tax filing deadline passed.
June 7 - The end of tax season bolstered client contributions to retirement programs and boosted advisers’ fee business.
- Low rates, political turmoil causing risk tolerance to plummet.
More than 60% of advisers said their mass-affluent clients (net worth of $250,000 to $1 million) would be able to replace their income for 30 years by the time they retire, compared with 77% of high-net-worth clients ($1 million to $10 million), and 83% of ultrahigh-net-worth clients (more than $10 million).
Almost 37% of advisers said their mass affluent clients’ retirement security is extremely vulnerable to a significant increase in health care costs, compared with 19% who said the same about their vulnerability to a crash in stock prices.
“Understanding medical expenses is a major topic of discussion with all clients,” one adviser said. “We see it as the biggest unknown to their financial plan.”