Advisors are not much concerned about inflation these days, but perhaps they should be.
The latest Fidelity Advisor Investment Pulse survey found that on a list of 14 potential concerns, inflation ranked dead last, along with alternative investments, cited by only about 3% of advisors.
The findings showed that regulatory and political developments continued to be the top concern for advisors in the first quarter, as they had been in the previous two.
Twenty-four percent of the advisors surveyed cited topics relating to government and the economy. Many focused on the Trump administration’s potential fiscal policy direction and on developments with the Labor Department’s fiduciary investment advice rule.
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The second and third top-of-mind concerns were portfolio management, cited by 18% of respondents, and interest rates, cited by 16%.
“Against this backdrop, inflation fears continue to be pushed into the background, especially with U.S. inflation slowing structurally since the early 1980s,” Robert Litle, head of intermediary sales at Fidelity Institutional Asset Management, said in a statement.
“Looking at the survey findings, we wanted to draw attention to what advisors are not concerned about, but perhaps should be. Given current expectations, any increase in the pace of long-term inflation could catch advisors off-guard.”
Two factors could contribute to ending the disinflationary trend in the U.S., Fidelity said. One is any move toward protectionism, which could put upward pressure on import costs and goods prices.
The other is an aging population, which may mean decreased consumption. Citing the U.S. Census Bureau, Bureau of Labor Statistics, Haver Analytics and its own research as of Dec. 31, 2015, Fidelity said older people historically have spent less.
As well, an aging population could result in decreased productivity and a fall in domestic production, which could reduce supply. Coupled with the potential of higher import costs, the net effect could be a spike in inflation.
For the first-quarter Advisor Investment Impulse Survey, 210 Fidelity Institutional Asset Management advisor clients in the broker-dealer and registered investment advisor communities participated.
Managing Inflation Risk
Fidelity said even periods of modestly rising inflation can challenge advisors and investors. Historically, rising inflation has meant a drag on returns from equities and bonds.