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Portfolio > Portfolio Construction > Investment Strategies

Advisors Bullish on 2022 but See Stocks Returning to Earth

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What You Need to Know

  • Ninety-five percent of advisors in a new survey said there could be several equity market corrections in 2022.
  • Many advisors fear for their clients in retirement and are having some tough conversations.
  • Seventy-three percent of advisors surveyed said they and the majority of their teams have returned to a normal, in-office schedule.

Fifty-four percent of financial advisors in a new survey expect the equity market to be up by 10% in 2022, InspereX reported Monday. But just 5% of advisors expect a repeat of this year, with the market up by 20% or more.

Twenty-eight percent of advisors predict the market will be flat, and 13% expect markets to be down by 10% or more.

Seven in 10 respondents do not foresee calm equity markets ahead with low volatility and more record highs; in fact, 95% said there could be several equity market corrections in 2022. 

More than half of advisors said they expected inflation to become a greater challenge but not big enough to end the stock market rally. In addition, only 21% of advisors believe the pandemic’s influence on markets is over, while 39% are unsure and 40% said it was not over. 

Asked what their clients are very worried about, 57% of advisors said taxes, 40% cited market corrections and 38% said inflation. 

InspereX is the tech-driven fixed income and market-linked product distribution and trading firm formed earlier this year from the merger of Incapital and 280 CapMarkets.

Red Zone Marketing conducted the sixth InspereX Pulse Survey in mid-October among 260 respondents representing some 50 broker-dealers, banks and RIAs.

Tough Retirement Conversations

Fifty-one percent of advisors in the survey forecast 10-year Treasury interest rates to hover between 1% and 2% for 2022, but 41% forecast rates at 2% to 3% or more. Just 8% see rates going down to between 0% and 1%. 

The effects of lingering low rates? Many advisors fear for their clients in retirement and are having some tough conversations.

Forty-two percent said their retired clients are using more of their principal as income replacement because of low interest rates. Thirty-two percent expressed concern that some of their clients will outlive their retirement savings unless yields rise significantly. 

Thirty percent said their clients are “tired of hearing me explain they have to take more risk if they want more yield,” and 10% said they have lost clients because they “could not generate the income clients wanted within their risk tolerance.” 

“In a lower-return environment, investors are generally seeking to protect their downside during periods of volatility,” Chris Mee, managing director of market-linked products at InspereX, said in a statement. 

“They aim to capture upside in the market and to avoid stalling growth, which could impact their ability to achieve their financial objectives.” 

One-third of advisors in the survey reported that for too many years, their clients had clung to the belief that yields will continue to rise, and this has cost them a lot of income. 

In terms of strategies to generate income and protect principal, 65% of advisors believe a laddered approach to bond investing is effective. Thirty-five percent said their clients own high-quality corporate bonds, 32% municipals and 10% Treasurys. 

Four in 10 acknowledged that their clients do not understand or appreciate what “taxable equivalent yield” means regarding municipal bonds. 

Back to the Office

Seventy-three percent of advisors surveyed said they and the majority of their teams have returned to a normal, in-office schedule. They also cited several work-related activities that have permanently changed over the past 20 months, including the use of virtual meetings, flexible work from home and digital options for clients and client communications. 

Forty percent of advisors said they are now meeting with clients face-to-face, while 32% continue to use virtual tools such as Zoom and 28% speak with clients by phone. 

As for in-person educational events, 19% of advisors said they are hosting such events now, and 5% planned to do so during the fourth quarter. Twenty-two percent said they will host hybrid or virtual events in the future, and 54% say they will host in-person events in 2022. 

Forty-two percent of advisors said the majority of their new clients this year had left another advisor. Thirty-six percent said their new clients had never worked with a financial advisor before, while 22% said they were chosen as one of several financial professionals. 

Just a quarter of advisors reported that they had relationships with the children of 50% or more of their current clients. The vast majority have generational relationships with 25% or fewer of their clients. 

Here’s how advisors said they grew their business in 2021: 

  • Referrals without asking
  • Asking for referrals from clients and strategic alliances
  • In-person networking
  • LinkedIn prospecting
  • Virtual education seminars

“Notice that the top two ways advisors generated new business were through referrals,” Mee said. “That says everything about the need for advisors to build client trust and appreciation for the value they bring.” 

Mee said advisors seeking to grow their business next year should focus on increasing the value they add through exceptional service and the use of customized investment strategies that give clients peace of mind and confidence. 

“If they do, they can expect the referrals to likely keep coming.” 

(Image: Adobe Stock)


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