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May 27, 2004 at 08:00 PM
In the last three years, many advisors have benefited from having access to benchmarks against which to compare the performance of their practices in areas such as profitability, compensation, assets under management, and staff structure.
Last month, AdvisorBenchmarking introduced a new benchmark that will allow you to gain better insight into how your practice compares to those of other advisors. The Advisor Confidence Index was launched on April 26 to provide a gauge of advisors’ views on the U.S. economy. Partially modeled after the Consumer Confidence Index, it captures the sentiments of 150 independent registered investment advisors (RIAs) who participate in a monthly survey about their outlook on the economy for various time periods. The index’s results will be released on the last Monday of every month.
How the Index Works
The index’s value runs on a scale of 33.33 to 166.67, with a perfectly “Neutral” reading standing at 100. A “Very Negative” stance is 33.33; “Negative” is 66.67; “Positive” is 133.33, and “Very Positive” is 166.67. Every month, the change in the index’s value from the preceding month will also be calculated and reported as a percent change.
The participating advisors answer four multiple-choice questions every month reflecting their views of the economy. Three questions gauge their views on the economy for the “current” time period, the “subsequent six-month” period and the “subsequent 12-month” period. The fourth question gauges their outlook on the stock market for the subsequent six months. For each question, the advisors select one of five multiple-choice answers, ranging from “very positive” to “very negative.” Each of the answers carries a specific weighting. For each question, the mean is calculated. Those four means are then aggregated and the resulting mean is calculated. Using a deduced factor, the new mean is converted to a base where a “neutral” stance is equal to 100, as mentioned earlier.
Advisors Cautiously Optimistic on Economy
April’s results showed a reading of 123.96, as indicated in the chart below. This value shows advisors’ sentiments leaning toward positive.
Source: AdvisorBenchmarking, April 2004
April’s value also shows the index inching 1.56% higher from its March reading, which was when the first survey was completed. Of note, the Consumer Confidence Index, which is based on a representative sample of 5,000 U.S. households, rose 4.51% in April. This extra optimism on the consumers’ part and the discrepancy between the CCI and the advisor index will be interesting to note over the coming months.
