Index Clients swept up by stock gains – Financial Planning

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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