From the September 2004 issue of Investment Advisor • Subscribe!

September 1, 2004

Cooler Heads Prevailing

Knowledge is power. And in the case of advisors, it may also lead to more dubious expectations. The Advisor Confidence Index--a new sentiment index from Rydex AdvisorBenchmarking.com that gauges advisors' views on the U.S. economy and markets--shows that advisors seem to have more skeptical expectations of market performance and economic outlook than do consumers. While the ACI tells a similar story to the Consumer Confidence Index (CCI), advisors have a much more tempered outlook than consumers. Since its release in March 2004, the ACI has moved in tandem with the CCI (with the exception of July), but with far less volatility than its counterpart. The CCI measures consumers' attitudes toward current and future business conditions, current and future employment conditions, and total family income six months forward, while the ACI is more general in nature and measures advisors' outlook on the economy and, to a lesser extent, the stock market.

"The job of a good advisor is to moderate our clients' emotions, so this may be an indication of that tendency. Another thing to consider is that one of our markers for the economy is the CCI--particularly the expectations component for future economic activity. Longer term, it will be interesting to see if the ACI is a contradictory indicator," said Bill Ramsay of Financial Symmetry Inc. in Raleigh, North Carolina, who participates in the ACI. But perhaps the greatest value of the ACI is for advisors to get a sense of their own marketplace. As another advisor participant in ACI--Jim Elder of ElderAdo Financial in Montrose, Colorado--explains, "The ACI is a very good way for advisors to see if they're in line with other advisors' opinions."

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