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.
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.” —