SEATTLE--(BUSINESS WIRE)--Fewer advisors (64%) are holding a positive outlook on the markets for the next three years according to the latest iteration of Russell Investments’ Financial Professional Outlook. This is the lowest recorded advisor sentiment in the survey’s history, which was first published by Russell Investments in 2010.
Advisor sentiment has only continued to fall from its 87% high early in 2014, and more than half of advisors surveyed (56%) cited concerns about future market volatility. As advisors and their clients respond to a challenging macro environment, advisors’ sentiment is matched by client uncertainty (53%), including concerns sparked by China and emerging market economies as a whole. These concerns may be having an outsized impact on advisor-client conversations and serving as a distraction from long-term planning efforts.
“We were somewhat surprised that advisors’ positive outlook about the next few years is on par with their 2012 sentiments, but we attribute some of this trepidation to the anticipated rise in interest rates as well as recent market volatility generated by concerns about China and emerging market economies,” said Phill Rogerson, managing director, consulting and product for Russell Investments’ U.S. advisor-sold business. “It’s key for advisors to not let these concerns derail their efforts to have long-term planning conversations with clients based on their goals and needs for the future. One way that advisors can address current market concerns is to provide context as to what a historical ‘normal’ market, asset class, and economic performance looks like, and use that as a foundation to help clients understand and navigate the increasingly complex investing environment.”
More direct conversations needed
Nearly one-third of advisors (30%) surveyed claim that as many as half of their clients are on an insufficient path to maintain enough assets to support their preferred lifestyles in retirement. More than half (55%) of advisors cited setting reasonable expectations around spending policies as one of their key challenges, and an additional 44% found similar struggles in maintaining the sustainable spending plans they do create with clients, given factors such as increasing life spans and escalating healthcare costs.
“Instead of focusing on short-term market events, advisors need to remember to center conversations on client goals,” added Rogerson. “Clients may call with apprehensions about the market, but advisors need to be able to defuse these concerns and move the conversation toward one that instead weighs the current progress of the client’s portfolio against their desired outcome. This way, actions stay connected to the clients’ individual needs without jeopardizing their future financial security.”
Chasing a responsible level of yield
In the survey, only 18% of advisors said that they don’t believe yield-focused investment strategies (or strategies that rely on dividends and interest alone to provide income) are a strong option for some or all of their clients. Yet, while many advisors see these strategies as viable options, many also noted potential deterrents including capital erosion due to inflation (53% of advisors) and higher credit risks (40%). Only 11% of advisors would recommend them to the majority of their clients.
“While many advisors continue to use a yield-oriented investment approach with clients, it’s worth noting that only a small portion believe that it is superior to other strategies. One of the primary hazards of being overly focused on yield is that it’s not always an optimal investment approach, and these strategies can actually put sustainable income at risk,” explained Rogerson. “To help reduce the level of risk and portfolio volatility, we believe that income solutions should pursue a responsible, sustainable level of yield through a well-diversified, multi-asset approach. We routinely work to provide advisors with support in developing these strategies and educating clients on their merit.”
Added Rogerson, “When it comes to the challenge of generating income, advisors should routinely evaluate the risks and potential opportunities of the investment strategy, as well as encourage clients to account for factors such as the balance of long- and short-term income needs, global diversification, risk and adaptability. Our view is that the best way to manage these four factors is to take a total return approach to portfolio management.”
Advisors agree. Of the advisors who said that yield-focused strategies were not a good option for all of their clients, more than two thirds (70%) would recommend a total-return approach which looks at the sum of interest, dividends and capital appreciation when considering the ability to generate income.
The current iteration of the FPO survey includes responses from 297 financial advisors working in nearly 213 national, regional and independent advisory firms nationwide. It was conducted between Oct. 6 and Oct. 21, 2015.
About Russell Investments
Russell Investments, a global asset manager, is one of only a few firms that offers actively managed multi-asset portfolios and services which include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors—using the firm's core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures to help each achieve their desired investment outcomes.
Russell Investments has more than $237 billion in assets under management (as of 9/30/2015) and works with more than 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell Investments has $2.4 trillion in assets under advisement (as of 12/31/2014). The firm has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell Investments also traded more than $1.7 trillion in 2014 through its implementation services business.
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The Russell Investments Financial Professional Outlook is a product of Russell Investments, produced independently of Russell Investments and manager research services. Advisors surveyed do not necessarily use Russell Investments products.
Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.