The growing sentiment gap
Market outlooks differ among financial advisors and investors
Caution and confusion are growing among investors
This year's volatility tempered market outlook among investors; nearly half reported financial losses as a result of February's volatility spike. At the same time, the proportion of investors who feel we are in a bull market dropped precipitously from 65% in Q1 to 37% in Q2. For investors, current market conditions cause confusion more than outright pessimism as almost half (46%) can't discern whether we're in a bull or a bear market. Overall willingness to invest is still high, although investors' tendency to feel that now is a good time to invest declined from 80% in Q1 to 69% in Q2.
Advisors tell a different story
Despite increased market volatility, the proportion of advisors who feel that now is a good time to invest has held steady around 87% since Q1. Advisors also have a greater sense of clarity on the market's direction as only 10% don't know whether the market is a bull or a bear. Moreover, most advisors still feel we are in a bull market (61%), and this figure showed only a moderate drop since Q1 (from 73% to 61%).
Is now a good time to invest?
Investors blame the market for their struggles, advisors disagree
While investors are most likely to cite the market as their top financial obstacle, advisors say investors' top financial obstacle is a lack of discipline or planning.
Macro concerns also differ
As for concerns, there is one that both groups agree on — about three out of four investors and advisors agree that a trade war could lead to a downturn this year. Otherwise, top macro concerns for investors and advisors differ, and these concerns increased over the course of the year. Congress tops the list of concerns for investors, followed by the federal budget deficit. More than 80% of investors expect at least one of these two to lead to a downturn in the stock market this year. In contrast, rising interest rates rank first among advisor concerns while the same concern ranks seventh for investors.
Differing reactions to rising interest rates
Investors who have less money tend to be more worried about rising interest rates
|Investor assets||Percent of investors
worried about rising
Advisors who have more years of experience are more likely to have advised their clients about rising interest rates
|Years of advisory
|Percent of advisors
who have advised their
clients about rising interest rates
|Fewer than three years||52%|
|Three to 10 years||55%|
|More than 10 years||68%|
The disconnect between advisors and investors impacts portfolio expectations
Differences in opinion between investors and advisors are not just limited to general concerns and market outlook. One area where these unspoken differences in perspective may cause tangible disappointments down the road is in expectations for portfolio income.
94% of advisors know which investments in their clients' portfolios are designed to provide income, and 93% have a clear idea of the yield client portfolios can generate. When it comes to the investors, however, one-third do not know how much of their portfolio is designed to create income, and four in 10 do not know what kind of yield to expect from their portfolios. Moreover, investors are most likely to believe their portfolio's income investments target a yield of 6% or more, whereas advisors target a yield of 4% on average.
Percent of portfolio designed for income (%)
Average target yield from portfolio's income investments (%)
Both a lack of clarity and the potential for unrealistic expectations from investors indicate that there is an opportunity for advisors to deepen client conversations around goals for income from investments.
A time for conversations to mitigate investor confusion
Advisors largely recognize the psychological impact of this year's volatility on investors, and eight in 10 said that it made their clients more cautious. Correspondingly, over half of investors say their advisors reached out to them during this period of volatility. Despite a cautious outlook, investors' general approach to investing remains steady, and a majority (67%) say they pay close attention to their investment portfolios without making changes in response to market conditions. Going forward, most investors intend to stick to the current strategies set out by their advisors.
Number of forecasted market adjustments in 2018 (%)
Given that both investors and advisors expect further volatility this year, now is a sensible time for advisors and investors to confirm their steps forward. Furthermore, advisors can expand the scope of client conversations to go beyond concerns stemming from near-term volatility so that these discussions address impactful issues that investors might not understand, such as interest rate risk.