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Advisor Top-of-Mind Index: Volatility, Election, Fed

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With the presidential and congressional elections just weeks away, Eaton Vance in September asked 1,002 financial advisors in an online survey what issues were on their minds.

Protecting wealth from market volatility remained the chief concern on the firm’s Advisor Top-of-Mind Index for the fifth consecutive quarter, but dropped from 129.7 to 116.4 on the scale, Eaton Vance reported Thursday.

Although 48% of advisors expressed concerns about generating income over the past year, this issue’s index rating fell slightly quarter on quarter to 114.0. The importance of reducing taxes stayed flat from the third to the fourth quarter, scoring 71.7.

Nearly all advisors said they expected the upcoming election to affect markets, with 57% believing the effect would be negative. They predicted that the Federal Reserve’s decision about interest rates would be the main driver of market volatility over the next six months, closely followed by the presidential election results and the pace of economic growth.

Thirty-nine percent of advisors anticipated that interest rates would rise before year-end, while another 41% expected the Fed to act early next year.

“Macro events have taken center stage in advisors’ minds this quarter and caused a lot of uncertainty,” John Moninger, Eaton Vance’s managing director of retail sales, said in a statement. “Uncertainty is unsettling, but advisors can help clients navigate through periods of market volatility by discussing long-term goals and reviewing the tactical plans in place to help meet or exceed those goals.”

In the current politically charged environment, 76% of advisors said their clients continued to worry about volatility, and 69% reported that their clients considered volatility a risk rather than an opportunity.

Volatility was on advisors’ minds as well. Fifty-five percent said they associated the term “volatility” with uncertainty. However, only 12% associated the term with losing money.

Eaton Vance’s Advisor Top-of-Mind Index uses a methodology similar that of the U.S. Consumer Confidence Index, with which it affirmed it has no affiliation. It calculates a weighted average of current perceptions (40% of the index) and what advisors think about the trends (60% of the index). The index set a baseline average of 100 for April 2014.

Advisor and Clients Talking Politics

Nearly all advisors surveyed acknowledged they were talking about politics with their clients. Thirty-nine percent said their clients raised the topic, 30% said they themselves did so, and 26% reported that politics came up as side conversations.

The poll found that 28% of female advisors saw the election as having a significant influence on the U.S. stock market, compared with 20% of their male counterparts. As a result, 24% of female respondents listed the election as their most important consideration, compared with 15% of males.

A majority of advisors said they would like to see the election lead to changes in government policy, with 51% preferring moderate changes, 40% big changes and only 10% comfortable with current policies.

The main issues advisors would like the new president and Congress to address:

  • Tax simplification: 56%
  • Investing heavily in national infrastructure: 38%
  • Deficit reduction or entitlement reform: 36%

Millennial advisors in the survey, who tended to have more millennial clients, expressed different priorities. Fifty-three percent said they would like to see government policies that invest heavily in jobs, versus 32% of all advisors, and 30% wanted more investment in defense, versus 19% of the overall sample.

“Advisors and their clients are anticipating the results of the election and are cognizant of the policy implications on their clients,” Moninger said. “Their opinions vary, but there is strong engagement across demographics.”

Market Outlook   

Forty-one percent of advisors reported a neutral attitude to equity markets for the short term as political and policy decisions emerge over the next few months, and 48% were neutral toward the bond market. Looking out one year, 44% of advisors were bullish on equities and 48% were bearish on bonds.

Faced with a challenging yield environment, 61% of advisors favored municipal bonds for generating income, 59% high-yield bonds and 56% a multi-strategy approach. Fifty-seven percent viewed corporate credit as attractive, given the rally in high-yield and investment-grade bonds.

For the next three-to-five years, 33% said multisector bonds were their top strategy, and 20% named laddered bond portfolios.

“Investing in bonds with low and negative yields requires confidence and certainty, both of which have been suddenly eroded,” Kathleen Gaffney, co-director of diversified fixed income at Eaton Vance, said in the statement.

“Holding a little bit of everything, including cash, makes a lot of sense right now. Taking a long-term view and building a diversified portfolio is a great approach in an uncertain world.”


Most advisors who responded to the poll said their clients were aware from mutual fund distributions might affect their tax bills. However, 47% of advisors were uncertain how to address this.

Sixty-nine percent said they were engaging in tax loss harvesting, while 78% said they recommend that their clients hold municipal securities; among those who do, 82% turn to munis for tax benefits.

“Taxes are an ongoing challenge for advisors and their clients, but they can also serve as a key point of differentiation,” Moninger said. “The majority of advisors today are focused on addressing tax challenges, but there is still room to further educate clients about the impact and benefits of tax-efficient strategies.”

— Related: Investors’ Cash Level Highest Since Brexit, 9/11: BofA Merrill Survey


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