- Investors are still skittish, with 3 of their biggest priorities being defensive: protecting wealth from market volatility, finding reliable income sources and minimizing the impact of taxes on portfolios
- Many investors are afraid of getting burned like they did in 2008
More than five years after the 2008 financial crisis, financial advisors report that investors are still skittish, with three of their biggest priorities being "defensive" in nature: protecting wealth from market volatility, finding reliable income sources and minimizing the impact of taxes on portfolios, according to Eaton Vance's "Advisor Top-of-Mind Index". Capital appreciation ranked lower on the Index, signaling that many clients are less concerned about growing their portfolios.
Eaton Vance's new quarterly Advisor Top-of-Mind Index, based on a survey of financial advisors, is calculated using a mathematical formula that incorporates the overall importance of each client issue, combined with how fast the issue is increasing in importance. Volatility measured 114.9 on the index, with income concerns ranking close behind at 106.6 and reducing taxes scoring 92.8. Growing wealth through capital appreciation came in at only 85.5.
"Despite five years of strong equity returns and fairly low market volatility in 2013, many investors are afraid of getting burned like they did in 2008," said Bob Cunha, Managing Director, Marketing and Distribution Strategy for Eaton Vance. "On top of that, many are looking at the prospect of double-digit losses in their bond portfolios as interest rates rise, along with tax bills that have skyrocketed. They appear to be more focused on protection than growth."
Rich Bernstein, CEO and CIO of Richard Bernstein Advisors LLC, agrees but sees a silver lining. "The fact that many investors are still fearful is actually a good sign. It suggests to me that the bull market in U.S. equities has not run its course. It's when investors get complacent and overconfident that I start telling clients to expect a potential market reversal. That's clearly not the case today."
With a broad range of factors potentially impacting markets and triggering investor anxiety, the Advisor Top-of-Mind Index aims to articulate the most commonly raised concerns. It is part of an ongoing study developed to help identify the investment themes and concerns clients are raising with their advisors most often. The Advisor Top-of-Mind Index is similar to the U.S. Consumer Confidence Index (which is not affiliated with Eaton Vance) in that it calculates a weighted average of current perceptions and what advisors think about the trends. In future quarters, Eaton Vance will measure which of these factors increase or decrease on the Advisor Top-of-Mind Index to glean insights into what advisors perceive to be clients' biggest financial challenges, along with how market volatility shapes client and advisor perspectives.
"The Advisor Top-of-Mind Index acts like a thermometer for the financial advisor community," Cunha said. "We believe it will help us, and our industry as a whole, to develop the tools and resources advisors need so they will be equipped to address their clients' most pressing needs. As sentiment changes over time, the index will help us identify evolving client concerns so that we can help advisors prepare their clients for the future and effectively navigate a still-uncertain investment environment."
Eaton Vance Advisor Top-of-Mind Index Methodology
The Advisor Top-of-Mind Index is calculated based on the findings of a survey of 401 financial advisors from a diverse group of companies. Eaton Vance contracted with a third party to conduct the online survey from April 1-12, 2014. The Advisor Top-of-Mind Index uses a similar methodology as the U.S. Consumer Confidence Index (which has no affiliation with Eaton Vance) in that it calculates a weighted average of current perceptions (40% of the index) and what advisors think about the trends (60% of the index). The index then sets a baseline average of 100 for April 2014. Each component measured is set relative to the 100 baseline average and will be tracked quarterly to illustrate changes in advisor perceptions and changes in trends over time. Future surveys will sample different financial advisors and may produce different results.