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Investor and advisor optimism fell at the beginning of this year for the first time in four years, according to Nationwide Advisory Solutions. Investor optimism fell from 62% in 2018 to 55%, and advisor optimism from 66% to 55%.

Nationwide’s fifth annual Advisor Authority study found that 66% of investors and 56% of RIAs and fee-based advisors expected market volatility to increase over the next 12 months, and both groups were recalibrating their financial outlook.

“More than a decade after the financial crisis of 2008, concern about volatility is again top of mind for advisors and investors alike, and uncertainty is on the rise,” Craig Hawley, head of Nationwide Advisory Solutions, said in a statement.

The number of investors who said they had an advisor is trending upward, increasing from 51% in 2016 to 62% in 2019.

The Harris Poll conducted an online study within the U.S. from Feb. 15 to March 4 among 824 adult investors — ranging from mass affluent with investable assets between $100,000 and $499,999 to ultra-high net worth with investable assets of $5 million or more — and 507 RIAs and 514 broker-dealers.

Managing Volatility

More than a quarter of investors said market volatility kept them up at night when they thought of protecting their assets and saving enough for retirement.

Headlines about lawmakers at home and abroad are top of mind — and affecting markets — according to investors. Forty-five percent cited gridlock in Washington as the factor most likely to cause volatility. Thirty-eight percent pointed to global instability, and 32% selected U.S. economic performance as the chief cause.

RIAs and fee-based advisors had a different view on the causes of market volatility. Thirty-three percent said interest rates were the No. 1 factor, 30% said gridlock in Washington and U.S. economic performance, and 29% said global instability.

Asked what would increase the likelihood of their working with an advisor over the next 12 months, 54% of investors cited market volatility as the top scenario.

The survey also asked investors about the most important benefit of working with an advisor when markets are volatile. Twenty-one percent of those with an advisor said doing so helped them stay focused on long-term goals.

Twenty percent each said it helped them make more informed decisions and protect their assets against market risk.

With volatility on the rise, 88% of RIAs and fee-based advisors said they had a strategy to protect their clients’ assets against market risk. Only 65% of investors in the survey said they have a strategy to protect their own assets, but this compared with 57% of investors in 2018.

To protect assets in volatile markets, some two-thirds of advisors and investors said diversification was the solution they used most. However, RIAs and fee-based advisors were more focused than investors on a diverse range of solutions:

  • Fixed annuities: 53% vs. 30%
  • Fixed indexed annuities: 48% vs. 23%
  • Liquid alternatives: 44% vs. 26%

The Difference a Year Makes

Investors and advisors were feeling optimistic going into 2018, the study said. And why not?

They looked forward to the prospects of a finance-friendly tax plan, the administration’s promise to cut regulation and a business-friendly majority in both the House of Representatives and the Senate.

Their optimism petered out going into 2019. Blame uncertainty around interest rates, the less promising reality of the tax overhaul, the growing partisan divide and an escalating trade war with China.

Now investors, RIAs and fee-based advisors have become cautious, yet clear-eyed. The survey showed that 58% of investors and 54% of RIAs and fee-based advisors were concerned about a U.S. economic recession over the next 12 months.

Fifty-four percent of investors and 56% of RIAs and fee-based advisors worried about a U.S. bear market during that timeframe. Likewise, both sets of respondents expected market volatility to increase.

At the same time, they are focused on practical matters that affect their pocketbooks and their portfolios. Thirty-three percent of investors said the cost of health care was their No. 1 financial concern, 31% cited taxes, 27% protecting assets, 23% saving enough for retirement and 16% inflation.

RIAs and fee-based advisors also most commonly cited the cost of health care as their clients’ top financial concern, followed closely by taxes, protecting assets and saving enough for retirement. Rising interest rates were a recurring concern for RIAs and fee-based advisors.