Advisor concerns about managing volatility, generating income, growing wealth and reducing taxes fell over the past quarter, according to the latest Eaton Vance Advisor Top-of-Mind Index (ATOMIX) survey, a quarterly survey of more than 1,000 financial advisors. Managing market volatility regained its position as the top focus for advisors despite falling to 110.5 on the index, well below its peak of 129.7 in Q3 2016.
Key findings:
- 72% of advisors believe the U.S. political environment will be the biggest source of market volatility for the remainder of the year
- 64% expect U.S. market volatility to increase over the next six months
- 64% are recommending clients maintain current portfolio allocations
- 46% are advising clients to hold more cash now than they were one year ago
“Advisor and client concerns dropped this quarter as markets rallied and volatility subsided,” said John Moninger, managing director of retail sales at Eaton Vance Distributors. “However, there is an underlying feeling of wariness as we head into September, driven by political uncertainty, geopolitical issues and the pace of U.S. economic growth.”
Fifty-three percent (53%) of advisors said their clients are still motivated by fear more than greed, a stark contrast to Q3 2016 when 82% said fear was their clients’ top motivator. Although 46% of advisors described investor sentiment as anxious, they maintain a rosier outlook for near-term growth, with close to half reporting a bullish view of the stock market for the rest of 2017. Yet advisors also suggested a measured approach to the markets. Eighty-two percent (82%) said they are scaling back client return expectations as the bull market approaches its ninth year.
“Advisors play a critical role in managing client expectations and easing their concerns,” said Moninger. “The best advisors are clearly articulating established financial plans and highlighting the benefits of setting long-term investment goals.”
Income concerns abate
While advisor focus on generating income dropped, 43% said it has increased in importance over the past year and 74% plan to alter their approaches to generating income if interest rates rise. Top income-generating solutions among advisors include dividend-yielding equity funds (selected by 56% of advisors), municipal bond funds (32%) and high-yield funds (32%).
“Advisors are anticipating and planning for the next set of challenges their clients might face,” said Moninger. “In a time of uneven global growth and political uncertainty, it’s critical for advisors to respond in a thoughtful, rational way that allows investors to take advantage of undervalued opportunities that can potentially lead to long-term rewards.”
Tax reform emerged as a new area to watch. Seventy-six percent (76%) of advisors said they have had a recent conversation about tax reform implications for client portfolios. Most advisors (84%) expect potential tax changes to positively affect clients, although not for some time. The majority (65%) believe substantial tax reform is one or two years away and are not currently advising clients to make significant changes.
Environmental concerns drive responsible investing
Responsible investing is playing an increasing role in advisor practices. Seventy-eight percent (78%) reported responsible investing is currently at least part of their practices. When asked what areas within responsible investing trigger the most client interest, advisors indicated clean energy (54%), followed by sustainability (44%) and climate change (41%). Human rights (33%), water issues (26%) and consumer protection (20%) ranked lower on the list of client priorities.
“Responsible investing, often called environmental, social and governance (ESG) investing, is an area that increasingly interests clients and also has the potential to deliver differentiated results,” said Anthony Eames, director of responsible investment strategy, Calvert Research and Management. “Many clients focus on the environmental component of ESG investments because it is more tangible. It is important for us to articulate the importance of the ‘S’ and the ‘G’ when providing clients with comprehensive responsible investing solutions.”
Sixty-five percent (75%) of advisors said the primary reason for exploring responsible investing options is to align investments with client values, followed by geopolitical concerns. Ninety percent (90%) of advisors believe the current political discourse is influencing client interest in responsible investing. However, only 23% said it is a major driver of interest.
“Many investors want to express their values and core beliefs through their investment decisions,” said Eames. “Advisors can strengthen client relationships by empowering them to affect change through responsible investing choices now and in the future.”
Twenty-eight percent (28%) of advisors said that at least a quarter of their responsible investing clients are millennials and nearly six in 10 advisors (57%) are actively pursuing millennial clients.
“As advisors look for ways to grow their practices, responsible investment strategies should be an important consideration and a point of differentiation especially among younger clients,” said Eames.
Eaton Vance ATOMIX Methodology
ATOMIX is calculated based on the findings of a survey of 1,005 financial advisors from a diverse group of companies. Eaton Vance contracted with a third party to conduct the online survey from June 26, 2017 – July 26, 2017. ATOMIX uses a similar methodology as the U.S. Consumer Confidence Index* (which has no affiliation with Eaton Vance) in that 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. Each component measured is tracked quarterly to illustrate changes in advisor perceptions and changes in trends over time. Future surveys will sample different financial advisors and may produce different results.
Eaton Vance (NYSE: EV) is a leading global asset manager whose history dates to 1924. With offices in North America, Europe, Asia and Australia, Eaton Vance and its affiliates managed $395.3 billion in assets as of June 30, 2017, offering individuals and institutions a broad array of investment strategies and wealth management solutions. The Company’s long record of providing exemplary service, timely innovation and attractive returns through a variety of market conditions has made Eaton Vance the investment manager of choice for many of today’s most discerning investors. For more information, visit eatonvance.com.
* The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The Consumer Confidence Index was started in 1967 and is benchmarked to 1985=100. The Index is calculated each month based on a household survey of consumers’ opinions on current conditions and future expectations of the economy. Opinions on current conditions make up 40% of the index, with expectations of future conditions comprising the remaining 60%.
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SOURCE Eaton Vance Corp.
