In anticipation of widely expected rate increases by the Fed, advisers are increasingly focused on generating income for their clients, according to the Q2 2017 Eaton Vance Advisor Top-of-Mind Index (ATOMIX) survey of 1,001 financial advisers.
Income ranked 125.8, the highest ranking since the index inception and a 16 per cent increase since Q1.
Adviser concerns about managing volatility marginally decreased to 111.5 on the index, after reaching a peak of 129.7 in Q3 2016. The ATOMIX survey indicated advisers continue to expect the US political environment to be the top driver of market volatility in 2017. Advisers reported their clients remain more motivated by fear (55 per cent) than greed, a significant decline from a high fear motivation of 82 per cent in Q3 2016. Over half (53 per cent) of advisers reported being bullish on US equities over the next year, while 20 per cent were bearish.
“The political environment initially buoyed markets in early 2017, but the continued low rate environment combined with a longer term bearishness on the bond market has pushed advisers to more closely examine client income opportunities,” says John Moninger, managing director of retail sales. “While current equity market sentiment is generally positive, advisers have trepidations about what lies ahead, including the potential for rising rates and policy changes and the resulting impact on the equity and bond market.”
Despite the equity market optimism, advisers’ reservations about current market valuations are evident, as nearly two in five (39 per cent) believe that markets are overvalued, while only 7 per cent believe the market is undervalued.
The appetite for responsible investing solutions increased dramatically quarter over quarter among advisers and their clients, with 40 per cent of advisers reporting that it is an important part of their practice – a 90 per cent increase from Q1 2016 when 21 per cent considered the strategy an important part of their practice.
“The rise in popularity of responsible investing is something we are watching closely,” says Moninger. “Advisers are telling us they are hearing more about it from their peers, their clients and in the media. We are developing educational materials and solutions to address these needs in ways that meet investor objectives.”
The increased focus on responsible investing coincides with the outcome of the US presidential election and ongoing concerns over US regulatory policy changes. Forty per cent of advisers have seen client interest in responsible investing strategies spike since the election, and roughly the same number (37 per cent) expect to increase their responsible investing recommendations in 2017.
“Delivering solutions that reinforce investors’ personal values while generating comparable or better returns is a priority,” says Moninger.
The majority of advisers believe the Trump administration will have a positive impact on the stock market (76 per cent), US dollar (62 per cent) and their businesses (80 per cent), despite nearly half (49 per cent) believing it will be the primary driver of market volatility in 2017.
Overall sentiment for bonds continues to decline, with 52 per cent of advisors claiming to be bearish and only 18 per cent bullish on the US bond market over the next year. They are relatively more optimistic about municipal bonds, with 32 per cent bullish and 23 per cent bearish on the muni market.
“Advisers are looking to policy-makers to guide investment allocation with a keen eye on potential Fed action and tax reform,” says Moninger.
An overwhelming majority of advisers (95 per cent) believe the Fed will raise interest rates at least once more in 2017, with over half (56 per cent) predict two or more additional rate hikes this year.
“Effective tax-management is the cornerstone of the advisor-client relationship,” says Moninger. “The best advisers actively work with clients throughout the full year to ensure client assets are managed in the most tax-efficient way.”
