A measure of clients’ risk tolerance dropped to its lowest point since November over concerns that stocks are overvalued and the Trump administration will cause market turmoil, advisers said in this month's Retirement Adviser Confidence Index, Financial Planning's monthly barometer of business conditions for wealth managers.
“I believe Trump’s uncertain governing style and the quick rise of the markets have made clients nervous,” one adviser wrote.
The overall index ticked down half a point to 54.8, and risk tolerance dropped 7.3 points to 52.6.
While the risk tolerance measure dropped as a whole, some planners reported that the bull market had prompted their clients to become more optimistic.
“We started a 100% equities portfolio as an option for our clients,” one adviser said. “Since the markets have been doing so well, a lot of our clients had been asking for something even more aggressive than our 80/20 aggressive portfolio.”
Over the month, advisers noted tax-season gains in sales of retirement products, new employer-sponsored plans and contributions into existing plans. There was growth in fees advisers collected for retirement services, and increases across the board in the three other categories measuring monthly trends in retirement-plan volume. Most advisers described the improvements as a Tax Day boost.
“It's tax season, so there are more people becoming interested in IRAs to lower their tax burden,” one adviser wrote.
“Tax season usually brings on new retirement plans for small business owners and self-employed [clients],” another adviser said.
The Retirement Adviser Confidence Index is composed of 10 factors — including asset allocations, investment product recommendations, economic and risk factors, taxes and planning fees — to track trends in wealth management. RACI readings below 50 indicate deteriorating business conditions, while readings over 50 indicate improvements.
This month’s index also features Financial Planning’s Retirement Readiness Index, which asks advisers to track their clients’ preparedness. The analysis tracks factors including retirement status, income replacement ability, dependence on Social Security and vulnerability to big economic shifts.
Advisers are very confident in their clients' ability to retire: Based on 308 responses, the Retirement Readiness Index shows a confidence level of 95%.
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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.
That said, many advisers reported they were concerned about how long-term health care costs would affect their clients' retirement prospects down the road. More than 60% of high-net-worth clients would be vulnerable to a hike in health care costs, according to the index.
"I think the need for long-term care is a critical concern in order to protect estate values," said one adviser. Another wrote: "Health care costs are the biggest risk, and unknown. It's important currently to all clients."
On the heels of the equities market rally following the election of President Trump, advisers are concerned their clients' retirement would be affected by a significant decline. Over 70% of high-net-worth clients would be vulnerable should equities decline significantly.
"We know market fluctuations will happen and, after some record highs, we need to maintain and balance the emotions of investors," one adviser wrote.