Most Advisors See Stocks Up 10% by Year-End: Survey

As to inflation, both advisors and their clients selected it as their fourth top concern. In the poll conducted in November, it was a top two concern for advisors and the leading one for clients.

The survey also asked advisors to identify clients’ biggest immediate fears. Forty-two percent said it was a market crash or loss of principal, 34% political/economic uncertainty and 8% running out of money in retirement. Just 8% said that their clients had no fears and were relatively calm.

Volatility’s Effects

Seven in 10 advisors in the survey opined that periods of market volatility are the best time to demonstrate their value and strengthen client relationships. In terms of business growth, 54% said that market volatility has led to increased client referrals or prospects expressing interest in receiving professional advice.

In this turbulent period, 66% of advisors said their clients have become more risk averse, while 27% have seen no change in their risk tolerance. Only 7% said clients are becoming more risk tolerant.

Twenty-eight percent of respondents reported that their clients have had to delay a major life goal, while another 52% said clients have expressed concern about putting off a goal.

Given this level of concern, three-quarters of advisors said they are discussing market volatility at least once a month with clients. And nearly all said they are confidently able to tell clients: “You’re going to be OK.”

InspereX noted that this confidence may be reflected in advisors’ client portfolio allocations. Sixty-four percent reported that they have not made significant changes to portfolio allocations over the past six months. In fact, 88% of advisors said their investment philosophy has been effective in protecting client assets through recent volatility.

Interestingly, severe market volatility has also resulted in increased contact with client family members. Twenty percent said more children of clients are inquiring about how they are handling their parents’ investments.

“Advisors are optimistic about equity market returns in the second half of the year but understand recent severe volatility has rattled their clients,” Christopher Mee, managing director of InspereX, said in a statement. “Through asset allocation and smart planning, successful advisors are able to build portfolios that help their clients weather the storm and stay invested. And when they do, they see their business grow.”

Asked whether they would consider letting go of a significant client who repeatedly disregarded advice during a volatile period, 67% of advisors said they have done so or would given the right circumstances.

Demand for Downside Protection 

According to the survey, 39% of advisors use downside protection strategies, and 55% are increasing their use of such strategies, perhaps in response to significant client demand, InspereX said.

Here’s how advisors are employing downside protection strategies:

• Reduce or eliminate clients’ risk exposure, 33%
• Provide peace of mind to clients, 33%
• Improve clients’ investment experience, 19%
• Target defined outcomes in client portfolios, 15%
  

Recent market events have led 80% of advisors to conduct new risk tolerance assessments with their clients, or plan to do so.

Advisors are currently recommending these protection strategies to clients:

• Annuities, 69%
• Structure products/market-linked notes, 54%
• Cash alternatives, 50%
• Buffered exchange-traded funds, 42%
• Market-linked CDs, 33%
  

“Downside protection strategies are keeping investors in the market during this period of heightened uncertainty,” Mee said. “We expect demand for these strategies will be strong for the foreseeable future as sentiment remains uneasy.”