Buoyed by the conclusion of a tumultuous election season and encouraging news on the coronavirus, clients ended 2020 on a high note, expressing rising confidence in their retirement picture and willingness to take on more risk, according to advisors polled in the latest Retirement Advisor Confidence Index, Financial Planning's monthly barometer of business conditions for wealth managers.
"After the election, it seems like there was more certainty," says one retirement advisor who took the survey.
This certainty has translated into a higher appetite for risk tolerance. The component of RACI that tracks clients' risk tolerance whipsawed throughout 2020, but ended the year at 60.8, the highest level since April 2019. December's risk tolerance score was an uptick of 3.8 points from November, and more than double the low point for the year — February's score of 29.6.
RACI scores higher than 50 signify an increase in investor confidence, while scores below that level indicate a decline.
One advisor observes that clients' "post-election jitters seemed to have been alleviated," with investors looking ahead favorably to a period of political stability.
"Clients have become slightly more risk tolerant in December than the prior month," another advisor says. "[They] see a bit more clarity with the elections mostly behind us."
Some advisors observe that while the coronavirus — and the prospect of new, more contagious strains — still has clients on edge, some of that anxiety has either subsided or has already been priced into the market. Moreover, the vaccine rollout coupled with a new political environment has given some clients renewed optimism.
"Clients have adjusted to the COVID situation and have a more positive market/investment outlook, either due to vaccines, changes expected from the incoming administration, or both," one advisor says.
The composite RACI score for December checked in at 56.3, the highest score since January 2018, and up 2.7 points from November.
Other key indicators of retirement confidence crept up in December, as well. Some advisors report that their clients' employment picture was generally improving, which typically translates into higher savings rates.
The RACI component that tracks the total number of retirement products advisors sold jumped to 56, the highest mark since January 2020, and up four points from the previous month.
Similarly, the overall dollar amount of retirement contributions posted a score of 65 in December, a monthly increase of 8.2 points and the highest score since December 2019.
"Clients have a bullish outlook but are awaiting the first quarter to see how [the] economy adjusts to new leadership with the Fed and COVID relief," one advisor says.
Some advisors see that bullish outlook as going too far, however, and worry that their clients are getting carried away with spikes in pricing. In response, some advisors have made it their mission to temper their clients' exuberance.
"As asset values moved upward, it pushed client risk tolerance to new heights," one advisor says. "So we spent a great deal of time cautioning clients about the high prices in segments of the market."