Advisor optimism around inflation is slipping

TOPEKA, Kan.--(BUSINESS WIRE)--While registered investment advisors report a similar level of economic confidence compared to the first quarter of the year, nearly half now believe that stock market volatility will be higher over the next 12 months than it was in 2023, according to the Second Quarter Economic Outlook Index released today by Security Benefit in partnership with Greenwald Research and DPL Financial Partners. This is the second edition of the quarterly index that gauges RIA sentiment on economic conditions from a range of 0 (extremely pessimistic) to 100 (extremely optimistic). The index score remained steady at 58 in this second edition.

“We’re at a pivotal time with the economy,” said Mike Reidy, National Sales Manager, RIA Channel at Security Benefit. “With the 2024 U.S. presidential election ahead, many RIAs are not concerned about a major equity market downturn over the next 12 months. However, they do anticipate that the market will experience a higher level of volatility than experienced in 2023.” With volatility comes uncertainty. “We will likely see rates remain the same over the next few months, with a potential decrease late in the year, though conditions like geopolitical developments and other political uncertainty are worrying advisors and their clients.”

Inflation woes remain

With the Personal Consumption Expenditures (PCE) inflation standing at 2.6%, four in ten advisors noted being extremely or very concerned about inflation and international conflicts negatively impacting the equity markets. RIAs have a much higher level of concern about inflation and international conflicts affecting investments in comparison to their clients. In fact, only 47% of RIAs surveyed believe inflation will be in the 2-2.9% range in the second half of the year, compared to 57% last quarter.

RIAs fear the effect that the political climate will have on the investment climate

Eighty percent of RIAs reported that their clients are concerned that the political environment over the next 12 months will impact their investments. Additionally, 32% of advisors expect the political climate to have a negative impact on the investment climate, though, in contrast, one in six (15%) expect it to have a positive impact.

Advisors agree that downside protection is important to clients

With concern growing over volatility for the second half of the year, it’s no surprise that RIAs believe their clients are very concerned about investment loss and value protection—in fact, 80% of RIAs agree that protection against loss is “highly” valued by clients. However, only 50% of RIAs state that downside protection products can play a valuable role in many clients’ portfolios. “This is where annuity products can fill the gap for financial professionals,” noted Reidy. “The more risk-sensitive the client, the more guaranteed principal products make sense as part of their portfolio mix.”

Nearly half (49%) of RIAs agree that a client’s age is important to determine the necessary level of downside protection. A similar amount, (46%) believe investment allocation is an important factor in determining the necessary level.

 

Methodology

In May 2024, Greenwald Research surveyed 100 registered investment advisors from across the United States, each managing significant assets and directly interacting with clients. The online questionnaire collected crucial data on RIAs’ business practices, economic outlook, financial product usage, and client demographics. This method blended quantitative and qualitative insights, capturing key trends within the financial advisory industry.