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Index Outlook improves for wealth managers – Financial Planning

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Solid economic numbers and corporate earnings reports are helping to support client sentiment and investment flows, advisors say.

Client allocations to equities increased sharply and positions in bonds also grew, according to the latest Retirement Advisor Confidence Index — Financial Planning’s monthly barometer of business conditions for wealth managers. The component tracking client holdings of stocks jumped 6 points to 58.7 and the component for bond holdings rose 2.9 points to 52.4. Readings below 50 indicate a decline and readings above 50 indicate an increase.

“People are becoming more encouraged by a seemingly improving economy,” one advisor says, echoing peers who report that brisk economic activity and healthy business earnings are feeding optimism.

Advisors say that investment flows are also being propelled by gains in employment and personal income that are adding to the pool of investable assets.

“Economic growth is leading to new enrollees in the workforce and more participants are contributing,” one advisor says.

Further, advisors say that better personal financial practices are enabling clients to focus on saving and planning for the future. One advisor attributes increased interest in new retirement accounts to clients’ adoption of “more aggressive saving-toward-retirement goals.” Another advisor says, “We’re beginning the retirement planning process much earlier than previously.”

The increases in the index components tracking flows into stocks and bonds helped swing the composite into positive territory with a gain of 2.3 points to 52.1. In addition to asset allocation, the composite tracks investment product selection and sales, planning fees, new retirement plan enrollees, client risk tolerance, and client tax liability.

The composite was also helped by the component tracking contributions to retirement plans, which advanced 0.4 points to 55.5, consonant with the readings on stock and bond holdings.

Advisors cite several additional factors that are supporting retirement investment flows in their practices, including a bulge in the number of clients at or near retirement age. One advisor says that business-owner clients now have a clearer picture of their likely earnings for the full year and are therefore more comfortable allocating money to retirement portfolios.

The index component tracking fees for retirement services added 2.4 points to 55.1, consistent with trends in assets under management indicated by readings on contributions and asset allocations.

While advisors say that overall confidence in the economy is helping to drive investment flows, the index signaled a persistent undercurrent of client nervousness.

At 48, the component tracking client risk tolerance registered its sixth consecutive month in negative territory, and continued to weigh down the composite.
Advisors say that unease continues to center around trade tensions, “dysfunction in Washington,” and volatile relations between the U.S. and other countries around the world.

One advisor says, “A handful of my clients are starting to think about cash. The bubble is out there. The question is when will it pop?”

Harry Terris

Harry Terris

Harry Terris is a Financial Planning contributing writer in New York. He is also a contributing writer and former data editor for American Banker.

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