Adviser concerns about managing volatility, generating income, growing wealth and reducing taxes fell over the past quarter, according to the latest Eaton Vance adviser Top-of-Mind Index (ATOMIX) survey, a quarterly survey of more than 1,000 financial advisers.
Managing market volatility regained its position as the top focus for advisers despite falling to 110.5 on the index, well below its peak of 129.7 in Q3 2016.
“Adviser and client concerns dropped this quarter as markets rallied and volatility subsided,” says John Moninger, managing director of retail sales at Eaton Vance Distributors. “However, there is an underlying feeling of wariness as we head into September, driven by political uncertainty, geopolitical issues and the pace of US economic growth.”
Fifty-three per cent (53 per cent) of advisers said their clients are still motivated by fear more than greed, a stark contrast to Q3 2016 when 82 per cent said fear was their clients’ top motivator. Although 46 per cent of advisers described investor sentiment as anxious, they maintain a rosier outlook for near-term growth, with close to half reporting a bullish view of the stock market for the rest of 2017. Yet advisers also suggested a measured approach to the markets. Eighty-two per cent (82 per cent) said they are scaling back client return expectations as the bull market approaches its ninth year.
“Advisers play a critical role in managing client expectations and easing their concerns,” says Moninger. “The best advisers are clearly articulating established financial plans and highlighting the benefits of setting long-term investment goals.”
While adviser focus on generating income dropped, 43 per cent said it has increased in importance over the past year and 74 per cent plan to alter their approaches to generating income if interest rates rise. Top income-generating solutions among advisers include dividend-yielding equity funds (selected by 56 per cent of advisers), municipal bond funds (32 per cent) and high-yield funds (32 per cent).
“Advisers are anticipating and planning for the next set of challenges their clients might face,” says Moninger. “In a time of uneven global growth and political uncertainty, it’s critical for advisers to respond in a thoughtful, rational way that allows investors to take advantage of undervalued opportunities that can potentially lead to long-term rewards.”
Tax reform emerged as a new area to watch. Seventy-six per cent (76 per cent) of advisers said they have had a recent conversation about tax reform implications for client portfolios. Most advisers (84 per cent) expect potential tax changes to positively affect clients, although not for some time. The majority (65 per cent) believe substantial tax reform is one or two years away and are not currently advising clients to make significant changes.
Responsible investing is playing an increasing role in adviser practices. Seventy-eight per cent (78 per cent) reported responsible investing is currently at least part of their practices. When asked what areas within responsible investing trigger the most client interest, advisers indicated clean energy (54 per cent), followed by sustainability (44 per cent) and climate change (41 per cent). Human rights (33 per cent), water issues (26 per cent) and consumer protection (20 per cent) ranked lower on the list of client priorities.
“Responsible investing, often called environmental, social and governance (ESG) investing, is an area that increasingly interests clients and also has the potential to deliver differentiated results,” said Anthony Eames, director of responsible investment strategy, Calvert Research and Management. “Many clients focus on the environmental component of ESG investments because it is more tangible. It is important for us to articulate the importance of the ‘S’ and the ‘G’ when providing clients with comprehensive responsible investing solutions.”
Sixty-five per cent (75 per cent) of advisers said the primary reason for exploring responsible investing options is to align investments with client values, followed by geopolitical concerns. Ninety per cent (90 per cent) of advisers believe the current political discourse is influencing client interest in responsible investing. However, only 23 per cent said it is a major driver of interest.
“Many investors want to express their values and core beliefs through their investment decisions,” says Eames. “advisers can strengthen client relationships by empowering them to affect change through responsible investing choices now and in the future.”
Twenty-eight per cent (28 per cent) of advisers said that at least a quarter of their responsible investing clients are millennials and nearly six in 10 advisers (57 per cent) are actively pursuing millennial clients.
“As advisers look for ways to grow their practices, responsible investment strategies should be an important consideration and a point of differentiation especially among younger clients,” says Eames.