Less Ap­petite for Risk

The in­dex of busi­ness con­di­tions for fi­nan­cial ad­vi­sors slides as in­vestors dis­close grow­ing un­ease about high stock val­u­a­tions, do­mes­tic tur­moil and geopo­lit­i­cal crises.

Financial Planning - - BENCHMARK - Harry Ter­ris

CLIENT RISK TOL­ER­ANCE HAS TUM­BLED AS wor­ries about high stock val­u­a­tions boil over, ac­cord­ing to the lat­est Re­tire­ment Ad­vi­sor Con­fi­dence In­dex — Fi­nan­cial Plan­ning’s monthly barom­e­ter of busi­ness con­di­tions for wealth man­agers.

Ad­vi­sors high­light con­cerns that the mar­ket is due for a ma­jor cor­rec­tion — and is highly vul­ner­a­ble to a range of do­mes­tic and geopo­lit­i­cal shocks — as the monthly in­dex’s risk per­cep­tion com­po­nent plum­meted 9.7 points to 46. That is the big­gest de­cline in more than a year and the first time the com­po­nent has been in con­trac­tion ter­ri­tory since the elec­tion. Read­ings above 50 in­di­cate im­prov­ing con­di­tions, while read­ings be­low 50 in­di­cate de­te­ri­o­ra­tion.

“We are de-risk­ing ac­counts as eq­uity val­u­a­tions be­come more stretched,” one plan­ner says. In ad­di­tion to the wide­spread be­lief that stocks are over­priced, some ad­vi­sors sin­gled out spe­cific risks like the prospect of war with North Korea and the pos­si­bil­ity that the Trump ad­min­is­tra­tion will make an er­ratic de­ci­sion that would se­verely dam­age the econ­omy.

The slide in risk per­cep­tion was the big­gest fac­tor in a 2.7-point drop to 51.4 in the com­pos­ite in­dex, which tracks as­set al­lo­ca­tion, in­vest­ment prod­uct se­lec­tion and sales, client risk tol­er­ance and tax li­a­bil­ity, new re­tire­ment plan en­rollees and plan­ning fees. The com­pos­ite’s de­cline was the worst since the elec­tion and pushed the in­dex be­low its level of a year ago.

Some ad­vi­sors say they’re cash­ing in stocks and re­bal­anc­ing to­ward fixed-in­come se­cu­ri­ties. But RACI

com­po­nents track­ing al­lo­ca­tions to eq­ui­ties, bonds and cash all fell, led by a 7.8-point drop into con­trac­tion ter­ri­tory for the cash com­po­nent at 45.9. The com­po­nents track­ing flows into eq­ui­ties and bonds con­tin­ued to show long-term ex­pan­sion.

The RACI com­po­nent track­ing fees charged for re­tire­ment ser­vices dropped 2.6 points but stayed in ex­pan­sion ter­ri­tory — and above the lev­els posted for most of the past year — at 54.2.

Ad­vi­sors say that clients have more money to save and are look­ing to add to re­tire­ment ac­counts. Some at­trib­uted in­flows to re­cent strength in hir­ing, with new em­ploy­ees be­com­ing el­i­gi­ble to en­roll in their com­pany re­tire­ment plans, spurring “a sub­stan­tial in­crease in new re­tire­ment ac­count open­ings and par­tic­i­pa­tion.” —

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