COVID-19 is wreaking havoc across the country, especially in the financial markets and economy. With trillions of dollars in assets managed by the financial advisory community in the U.S., it’s logical to explore how financial advisers are feeling about the pandemic and their outlook for the economy. According to the 2020 Trends in Investing Survey by the Financial Planning Association (FPA), the Journal of Financial Planning, and Janus Henderson Investors, financial advisers are feeling bearish about the market and economic outlook for the next six months.
This year’s survey, conducted annually since 2006, showed the pandemic is having a direct impact on the optimism advisers have for the economy’s short-term prospects. With President Trump declaring a national state of emergency on March 13—in the middle of fielding the survey—it provided an opportunity to see how advisers’ six-month economic outlook shifted almost immediately. Results from March 7-13 showed advisers were generally neutral or somewhat bearish, with just 12 percent bearish. After March 13, nearly one-third of advisers were bearish (31%).
Another byproduct of the pandemic is the fact the survey pointed to financial advisers now opting for equities over cash and equivalents. Among the findings, 25 percent of advisers plan to increase their use of individual stocks, compared to 15 percent in 2019. Meanwhile, 14 percent of advisers said they plan to decrease their use/recommendation of cash and equivalents in 2020, compared to 5 percent who indicated so in 2019.
“It’s not surprising to see more advisers re-evaluating their asset allocation strategy,” said Adam Hetts, Global Head of Portfolio Construction and Strategy at Janus Henderson Investors. “The survey results rhyme with the unusually large volume of client inquires we’ve received since the COVID-19 sell-off began. An unprecedented market environment seems to have translated into an unprecedented amount of rebalancing and reallocation. What’s really different to me about this year is the humbling effect this sell-off has had on investors - portfolio losses once thought unique to the Global Financial Crisis have come back again. When once-in-a-lifetime losses become once-in-a-decade, everything changes.”
Each year, the survey looks at where financial advisers are investing today and where they plan to increase or decrease investments over the next 12-months. For the past several years, Exchange-Traded Funds (ETFs) have been the overwhelmingly preferred investment vehicle by financial advisers. This year was no different, with 85 percent currently using or recommending them. While ETFs continue to reign, Environmental, Social, and Governance (ESG) funds are now growing in popularity, with 38 percent of advisers using them.
ESG funds were first included in the survey in 2018 when 26 percent of advisers indicated they were using or recommending ESG funds with clients. That percentage remained steady at 26 percent in 2019 and increased meaningfully to 38 percent of advisers currently using or recommending ESG funds in 2020. Nearly one-third (29%) of advisers indicated in the 2020 survey that they plan to increase their use/recommendation of ESG funds over the next 12 months. Almost 40 percent of advisers reported that clients had asked them about investing in ESG funds in the past six months.
“Part of the magic of financial planning is to align a client’s financial decisions with their values. I think the increase in ESG usage reflects an increasing awareness of how important ESG is to some clients and the increasing quantity and quality of ESG vehicles,” said Dan Moisand, CFP, practitioner editor of the Journal of Financial Planning and past national president of FPA.
The 2020 survey, which received 242 responses by financial advisers of various backgrounds and business models, also indicated that clients were, not surprisingly, asking about the effects of general volatility (76%) and COVID-19 (70%) in their portfolios. Other key findings from the 2020 Trends in Investing Survey, include:
• In the 2019 survey, 55 percent of advisers indicated that clients were inquiring about investing in cannabis investments, and the number dropped to 34 percent this year. Likewise, cryptocurrencies saw a drop from 25 percent in 2019 to 17 percent in 2020.
• While a majority of financial advisers continue to favor a blend of active and passive investment management (66%), there appears to be a slight decrease in favoritism—29% in 2019 to 24% in 2020—toward a purely passive approach.
• Fifty-seven percent of advisers have reevaluated asset allocations over the previous three months, but it appears the reasons for the reevaluations changed mid-survey due to current events. For example, before March 13 (declaration of a national state of emergency), 26 percent of advisers reevaluated asset allocations because of the economy. After March 13, 64 percent say the economy was a factor.
“Many advisers make reevaluating allocations a consistent part of their process, but it’s clear the Coronacrash hastened the timetable for that for many,” added Moisand. “Broad diversification is so easy and cheap to attain these days; it makes sense that increasing usage of mutual funds would continue to rise. And the tax efficiency and trading flexibility of ETFs continues to draw interest. I’d be curious to see in next year’s survey if advisers moved to more alternative investments or other non-traditional vehicles like options contracts to hedge. With their ‘normal’ investments down, marketers ramp up their efforts, and consumers often look at less plain vanilla offerings during bear markets.”
Of those surveyed, 79 percent are Certified Financial Planner professionals, 54 percent indicated that they work as an independent IAR/RIA, and 35 percent say they have more than 21 years of financial services experience.
Learn more about FPA at FinancialPlanningAssociation.org
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