BOSTON, Feb. 9, 2016 /PRNewswire/ -- Turbulent markets continue to trouble investors, prompting financial advisors to rank "managing market volatility" as their top concern for Q1 2016. The 123.8 reading on the Advisor Top-of-Mind Index (ATOMIX) survey is the highest ranking since the index originated in April 2014.
Eighty percent of financial advisors reported that fear is the primary motivator for their clients, up from 51% in Q1 2015, reflecting escalating concerns over the steep increase in volatility across global markets. Additionally, nearly half (44%) of financial advisors polled believed that the likelihood of a U.S. recession by year-end is either moderate or high, underscoring their growing trepidation over the pace and direction of global growth.
John Moninger, managing director at Eaton Vance, believes the volatility spike in the latter part of 2015 and the emotional reaction many investors had to it may be leading to investment actions that work against their long-term goals.
"Market volatility is an output of investor sentiment and history suggests that dislocations caused by volatility can present compelling opportunities for investors who remain calm, evaluate the fundamentals and take a long-term approach to their portfolios," said Moninger. "It's critical for financial advisors to work with clients to understand their life goals and then develop and follow an investment plan together."
The Q1 2016 ATOMIX survey also revealed that despite high concerns about volatility, nearly half (47%) of advisors counsel clients to stay the course through volatile periods and adhere to established plans.
"Investors can be tempted to diverge from a buy-and-hold mentality during periods of heightened volatility," said Mr. Moninger. "Advisors can provide invaluable guidance to their clients by instituting a sound investment strategy and then effectively communicating the value of sticking to that strategy, especially when clients are fearful."
One way advisors can help clients act prudently in volatile markets is to focus them on their tax bills.
"Tax management consistently ranks lowest on the ATOMIX survey, suggesting that many investors do not fully understand the impact taxes can have on total return," Moninger said.
In fact, six out of 10 advisors (61%) reported that they do not believe their clients even know the effective tax rate on their investments.
"Tax loss harvesting is one way to minimize the investment tax burden," said Moninger.
"Tax-conscious investors should consider how they can get ahead of tax bills and focus on tax management throughout the year instead of only in the fourth quarter or around Tax Day."
While 45% of advisors stated they harvest client losses annually, only 3% do so monthly and 17% do so on a quarterly basis.
While interest-rate speculation contributed to market volatility in 2015, the December rate hike has led to general consensus among advisors about the pace of future hikes. Seventy-two percent believe there will be several small rates hikes in 2016.
Yet advisors diverge on how to best prepare client portfolios for a rising rate environment, identifying multisector, municipal, floating rate and high-yield bonds as potential solutions for their clients. Fifty-five percent also noted that they are moving their clients into equity strategies in an effort to combat the impact of rising rates.
"Ultimately, clients are telling their advisors that they are nervous about the economy, interest rates and what market volatility will do to the assets they have spent a lifetime working to accumulate," said Moninger. "Financial advisors can clearly define the value they bring by helping their clients stay focused, invested and opportunistic through challenging markets and over time."
Eaton Vance ATOMIX Methodology
ATOMIX is calculated based on the findings of a survey of 1,000 financial advisors from a diverse group of companies. Eaton Vance contracted with a third party to conduct the online survey from December 16, 2015 – January 11, 2016. ATOMIX 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 set a baseline average of 100 for April 2014. Each component measured is 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.
Eaton Vance (NYSE: EV) is a leading global asset manager whose history dates to 1924. With offices in North America, Europe, Asia and Australia, Eaton Vance and its affiliates managed $308.0 billion in assets as of December 31, 2015, offering individuals and institutions a broad array of investment strategies and wealth management solutions. The Company's long record of providing exemplary service, timely innovation and attractive returns through a variety of market conditions has made Eaton Vance the investment manager of choice for many of today's most discerning investors. For more information, visit eatonvance.com.
* The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The Consumer Confidence Index was started in 1967 and is benchmarked to 1985=100. The Index is calculated each month based on a household survey of consumers' opinions on current conditions and future expectations of the economy. Opinions on current conditions make up 40% of the index, with expectations of future conditions comprising the remaining 60%.
SOURCE Eaton Vance