Swept Up by Stock Gains

Risk tol­er­ance strength­ens as ad­vi­sors re­port that clients are hop­ing to build on gains in their in­vest­ment port­fo­lios.

Financial Planning - - BENCHMARK - — Harry Ter­ris

RE­TIRE­MENT AD­VI­SOR CON­FI­DENCE IN­DEX CLIENTS ARE BE­COM­ING MORE CON­FI­DENT as they are ap­par­ently be­ing swept up by stock mar­ket gains and are look­ing past frothy val­u­a­tions, in­ter­na­tional ten­sions and the un­sta­ble po­lit­i­cal cli­mate, ad­vi­sors say.

The im­prove­ment in in­vestor sen­ti­ment is help­ing to sus­tain fa­vor­able con­di­tions in the in­dus­try, ac­cord­ing to the lat­est Re­tire­ment Ad­vi­sor Con­fi­dence In­dex — Fi­nan­cial Plan­ning’s monthly barom­e­ter of busi­ness con­di­tions for wealth man­agers.

The com­po­nent mea­sur­ing client risk tol­er­ance in­creased 2.8 points to 56.6 — one of the big­gest moves across the fac­tors cov­ered by the in­dex. Read­ings above 50 in­di­cate im­prov­ing con­di­tions, while read­ings be­low 50 in­di­cate de­te­ri­o­ra­tion.

Ad­vi­sors say eq­uity gains dulled clients’ fear of a cor­rec­tion, re­gard­less of ex­pen­sive mul­ti­ples. “Clients are mak­ing money in stocks and have a higher risk ap­petite,” one plan­ner says.

In­vestor sen­ti­ment was also buoyed by law­mak­ers’ ef­forts to de­liver a huge tax cut to cor­po­ra­tions, ad­vi­sors say. “Po­ten­tial tax cuts are rais­ing ev­ery­one’s mar­ket out­look,” one says.

To be sure, some ad­vi­sors say they are try­ing to push back against overex­u­ber­ance among clients and are work­ing to re­view and re­bal­ance port­fo­lios fre­quently. “We try to tem­per ex­pec­ta­tions and keep them within their risk tol­er­ance lim­its,” one says.

With the boost from the risk per­cep­tion com­po­nent, the com­pos­ite RACI rose 0.4 points to 54.4. The

com­pos­ite also tracks as­set al­lo­ca­tion, in­vest­ment prod­uct se­lec­tion and sales, client tax li­a­bil­ity, new re­tire­ment plan en­rollees and plan­ning fees.

With stock prices soar­ing, clients have added to po­si­tions in eq­ui­ties, bonds and cash. The in­dex com­po­nent mea­sur­ing al­lo­ca­tions to stocks dipped 0.5 but re­mained well within ex­pan­sion ter­ri­tory at 61.3. The in­dex com­po­nent mea­sur­ing cash al­lo­ca­tions was up 1.3 to 54.4, and the com­po­nent mea­sur­ing al­lo­ca­tions to bonds rose 0.9 to 54.2.

Ad­vi­sors con­tinue to vent their ob­jec­tions to the fidu­ciary rule, but the in­dex com­po­nent track­ing fees charged for re­tire­ment ser­vices surged 4.2 points to 58.6. As one ad­vi­sor says, “Higher mar­kets meant higher as­sets un­der man­age­ment fees.”

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