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Feeling anxious? Here are the top 4 concerns of advisors

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Managing market volatility continues to be advisors’ top concern according to new research.

Eaton Vance Distributors discloses this finding in its “Advisor Top-of-Mind Index (ATOMIX), a quarterly survey of 1,000 U.S. financial advisors. The index calculates a weighted average of current perceptions (40 percent of the index) and what advisors think about the trends (60 percent of the index).

The Index set a baseline average of 100 for April 2014. Each component measured is tracked quarterly to illustrate changes in advisor perceptions and changes in trends over time.

Related: A tale of woes: boomers trying to build a retirement nest egg

The top 4 advisor concerns identified in the report include:

  • Volatility scored 129.7 on the ATOMIX, the highest ranking of any concern since inception and the top concern for financial advisors for the fourth consecutive quarter.

  • Generating income for clients ranked second at 122.8, a significant jump from 108.1 in the second quarter.

  • Growing wealth through capital appreciation ranked 103.1, a dramatic increase from 83.0 in Q2.

  • Reducing tax exposure ranked 72.2, reflecting a slight increase from 67.3 in Q2.

Investor concerns about the markets remain elevated as well with four out of five advisors (82 percent) reporting their clients are motivated by fear when making investment decisions, the highest percentage to date.

“The surprise Brexit outcome, ongoing political uncertainty, the possibility of more rate hikes and a sluggish U.S. economy has thrown many advisors and their clients into a state of heightened anxiety,” says John Moninger, managing director of retail sales at Eaton Vance. “While unsettling, this environment creates an opportunity for advisors to calm investors’ fears, discuss the opportunities that emerge from market volatility and reaffirm long-term investment plans.”

Client communication remains a priority. In the wake of the Brexit vote, 67 percent of advisors proactively contacted clients to discuss long-term strategies and potential opportunities

Market sentiment

Despite increased anxiety about the markets, there is little consensus among advisors about what to expect in the second half of 2016. Close to half of advisors surveyed (45 percent) are bullish on U.S. equities over the next quarter, with 17 percent reporting a bearish attitude and 38 percent currently undecided. When asked about a recession, 54 percent believe there is a low chance, 38 percent report a moderate chance and eight percent say there is a high likelihood of a late 2016 recession.

The upcoming U.S. presidential election is top-of-mind for advisors. Ninety-one percent of advisors are watching the upcoming race, but they are split on its potential impact. While 90 percent agree the election will affect markets, 45 percent believe the impact will be positive and 55 percent negative.

Thirty-nine percent of advisors believe it’s too early to consider the impact of the upcoming election on tax strategy. Only 12 percent of advisors believe it will have major repercussions on their business.

Related: U.S. insurers ‘less exposed’ by Brexit than other sectors

Generating Income in a low-yield environment

With over half (52 percent) of advisors reporting that generating income increased in importance over the past year, finding consistent sources of yield for clients remains a key priority for advisors.

“The ongoing low-return environment has driven advisors’ concerns around generating income, and many are employing a variety of fixed-income strategies to meet their clients’ needs,” says Moninger, “At the same time, many are watching the Fed for a possible rate hike, which would impact bond prices and serve as a catalyst for advisors to adjust portfolio allocations.”

Related: MetLife CEO on interest rates, Brexit and restructuring

Advisor opinions about future Fed actions are split, with 46 percent reporting they believe there will be one rate rise before the end of 2016 and 42 percent stating there will be no hike until 2017. Seventy-one percent of advisors report they are not currently concerned about inflation, potentially signaling predictions of slow growth.

In the event the Fed raises rates, advisors indicated floating-rate loan funds are their most-preferred strategy for generating income for clients, followed by high-yield bond funds and multi-sector bond funds.

Advisors generally agree that the Fed will not explore negative interest rates, with 62 percent claiming the Fed will not entertain the idea in 2016 and 22 percent saying it will never do so.

Socially responsible investments & millennials

A newly important topic of conversation between advisors and clients is socially responsible investing. Sixty-five percent of advisors report at least some clients have expressed interest in socially responsible investments:

  • 23 percent of advisors proactively engage their clients in these discussions; and

  • 45 percent report their clients initiate these conversations.

“Developing customized investment strategies that deliver desired investment results and reflect clients’ core beliefs helps advisors deliver added value and differentiate their client service,” Moninger says. Socially responsible investing is one area deemed more important by millennial advisors (born 1985 and later):

  • 88 percent of millennial advisors report socially responsible investing is rising in interest or a “hot topic” right now compared with 57 percent of advisors of all other generations.

  • 26 percent of millennial advisors use socially responsible investments whenever possible, compared with 13 percent of advisors of all other generations.

Nearly three out of four advisors (74 percent) describe their millennial clients as more engaged than their non-millennial clients. To address this, half of advisors report they communicate differently with their millennial clients. However, more than half (57 percent) of advisors described millennials as less likely to have confidence or more nervous about investing than clients of other generations.

“It’s critical to align advice practices with client preferences regardless of age,” Moninger says. “As the millennial generation ages, finding the right investment strategies, practices and ways to enhance communication and comprehension will be critical to facilitate a huge generational wealth transfer.” 


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