Cash Po­si­tions Rise

Ad­vi­sors say many clients are tak­ing prof­its and hedg­ing against a pos­si­ble sell-off, even as their risk tol­er­ance re­bounds.

Financial Planning - - BENCHMARK - Harry Ter­ris

CLIENTS ARE RAIS­ING THEIR CASH PO­SI­TIONS by tak­ing gains off the ta­ble as they hedge against the pos­si­bil­ity of a big sell-off, ac­cord­ing to the lat­est Re­tire­ment Ad­vi­sor Con­fi­dence In­dex, Fi­nan­cial

Plan­ning’s barom­e­ter of business con­di­tions for wealth man­agers.

The com­po­nent mea­sur­ing flows into cash jumped 6.5 points to 52.4, one of the big­gest moves in the monthly in­dex, which also tracks as­set al­lo­ca­tion, in­vest­ment prod­uct se­lec­tion and sales, client risk tol­er­ance and tax li­a­bil­i­ties, new re­tire­ment plan en­rollees and plan­ning fees.

Ad­vi­sors say many clients are spooked by high mul­ti­ples, with some liq­ui­dat­ing eq­ui­ties as a re­sult. “I had a hand­ful of clients that we felt had achieved our re­turn ob­jec­tives for the year and wanted to take some prof­its,” one plan­ner says.

Nev­er­the­less, solid long-term in­vest­ment per­for­mance and de­cent eco­nomic fun­da­men­tals are still in­flu­enc­ing client al­lo­ca­tions.

“Clients are be­com­ing more and more com­fort­able with the stock mar­ket. They see it as a place to save for re­tire­ment more so than they did three to five years ago,” one ad­vi­sor says. “And each month the mar­ket makes new highs, [and] they be­come more ex­pec­tant in their re­turns from our firm.”

The RACI com­po­nent track­ing the amount of client as­sets used to buy eq­ui­ties in­creased 3.4 points to 59, and the broader con­fi­dence in­dex in­creased 2.3 points to 53.7. Read­ings above 50 in­di­cate im­prov­ing

con­di­tions, while read­ings be­low 50 in­di­cate de­te­ri­o­ra­tion. (Fi­nan­cial Plan­ning re­cently ad­justed how the data is dis­played in graph­ics to bet­ter re­flect sur­vey re­sults.)

The most re­cent num­bers show ad­vi­sors have been re­port­ing that the wealth man­age­ment en­vi­ron­ment has been broadly im­prov­ing for nearly a year.

De­spite de­fen­sive shifts into cash, ad­vi­sors say over­all client risk tol­er­ance has re­bounded. RACI’S risk com­po­nent swung back into ex­pan­sion ter­ri­tory with a 7.9-point in­crease to 53.9.

That’s close to lev­els that have pre­vailed for much of the year, and some ad­vi­sors say they are try­ing to rein clients in.

“Clients seem to be grow­ing more and more bullish and greedy,” one plan­ner says. “I am main­tain­ing the same in­vest­ment mix at this point and talk­ing them down from get­ting more ag­gres­sive.”

The RACI com­po­nent track­ing fees charged for re­tire­ment ser­vices gained 1.3 points to 55.5, main­tain­ing a long streak in ex­pan­sion that has been largely sus­tained by the in­creas­ing mar­ket value of man­aged as­sets.

Ad­vi­sors also say clients chan­neled ad­di­tional funds into tax-shel­tered re­tire­ment ac­counts ahead of ex­tended deadlines for tax re­turns.


The lat­est RACI, which is based on ad­vi­sors’ as­sess­ment of con­di­tions in Septem­ber rel­a­tive to Au­gust, is ac­com­pa­nied by the quar­terly Re­tire­ment Readi­ness In­dex.

The in­dex tracks ad­vi­sors’ eval­u­a­tions of their clients’ in­come re­place­ment abil­ity, likely de­pen­dence on So­cial Se­cu­rity and vul­ner­a­bil­ity to big eco­nomic shifts.

Ad­vi­sors ex­pect rel­a­tively large pro­por­tions of their clients will be able to re­place their in­come for 30 years by the time they re­tire: 60% of mass-af­flu­ent clients (net worth of $250,000 to $1 mil­lion), com­pared with 75.2% of high­net-worth clients ($1 mil­lion to $10 mil­lion) and 84.3% of ul­tra­high-net-worth clients (more than $10 mil­lion).

Yet ad­vi­sors also say the re­tire­ment se­cu­rity of their mass-af­flu­ent clients re­mains un­der threat from var­i­ous po­ten­tial shocks. In par­tic­u­lar, al­most 38% of ad­vi­sors say mass-af­flu­ent clients are ex­tremely vul­ner­a­ble to a sig­nif­i­cant rise in health care costs, and 19% say they are ex­tremely vul­ner­a­ble to a sig­nif­i­cant drop in eq­uity prices.

Sev­eral ad­vi­sors also say they are con­cerned that clients might not be pre­pared to cover the cost of long-term care be­cause of in­creas­ing life ex­pectancy.

Harry Ter­ris is a Fi­nan­cial Plan­ning con­tribut­ing writer in New York. He is also a con­tribut­ing writer and for­mer data edi­tor of Amer­i­can Banker. Fol­low him on Twit­ter at @har­ry­ter­ris.

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