Generating income and growing wealth for clients are top priorities for financial advisors as investor confidence increases

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Nov 08, 2018, 09:25 ET

BOSTON, Nov. 8, 2018 /PRNewswire/ -- Generating income for their clients is now the leading concern of financial advisors, ranking 129.7 on the Eaton Vance Q4 2018 Advisor Top-of-Mind Index (ATOMIX), a 24% increase since the second quarter. Helping clients grow wealth is also increasingly important, hitting a new Index high of 114.5, up 14% since Q2, according to the latest ATOMIX survey of more than 600 advisors. Greed surpassed fear as the top client motivator for the first time since inception of the ATOMIX survey, prompting some advisors to speculate about the high level of investor confidence.

"While our survey results indicated a sense of optimism about equity markets coming into the fourth quarter, October has brought some challenges resulting in few places to hide," said John Moninger, Managing Director of Retail Sales. "Advanced advisors are taking advantage of market dips to identify longer term value, while preparing clients for rising rates. Now more than ever, clients need sound guidance, while the markets are sending mixed messages."

Helping clients manage market volatility continued to be a focus for advisors, marginally increasing to 127.7 on the ATOMIX from Q2. Key catalysts of market volatility included geopolitical issues and conflicts (28%), the U.S. political environment (26%) and the Fed's rate-hike decisions (22%).

However, advisors reported some of their clients still lack confidence, and 44% described their clients as "anxious" when it comes to their investments. In addition:

Seventy-eight percent of advisors reported having discussions with some clients about a looming recession
Sixty percent expect volatility to increase in the next six months
Fifty-nine percent believe tariff-related actions globally will trigger increased volatility

Short-duration strategies gaining in popularity
Our survey found that advisors are actively working with clients to prepare for anticipated rate hikes over the next 18 months. High-yield bond funds and floating-rate loan funds are their top choices as they prepare for higher interest rates, according to the ATOMIX survey. In addition, one quarter of advisors reported shifting the balance of U.S. versus global assets to adjust for rising rates.

Forty-five percent said they are shortening bond duration
Forty-two percent have repositioned portfolios to help mitigate interest-rate risk
Seventy-four percent believe the bond market will be flat to negative over the next six months
Forty-six percent said their interest in emerging markets has increased over the last year

Tax management emerges as new priority
Tax reform in the current political environment has prompted renewed interest in the tax efficiency of client portfolios. Advisors widely reported that tax reform is positive for their clients, their practice and the broader economy.

Fifty-four percent believe their clients will benefit from tax reform in 2019
Sixty-two percent said their practice will also benefit
Sixty-four percent are making changes to client portfolios based on tax reform

"Although largely seen as a win, tax reform has prompted many advisors to employ tax optimization strategies for their clients," said Mr. Moninger. "Active tax management can differentiate advisors and help ensure clients are minimizing their tax exposure across their equity and bond portfolios. Specifically, we've seen success with Parametric Custom Core, a versatile solution that helps advisors address tax concerns, which has generated more than $4 billion in assets in 2018."

Not surprisingly, municipal bonds are advisors' go-to investment under the new tax law, with 88% using municipal investments as tax management tools. Yet advisors differ in the way they use municipal bonds:

Thirty-five percent use laddered muni portfolios
Twenty-seven percent select individual muni bonds
Twenty-seven percent allocate to muni funds or separately managed accounts

"Eaton Vance Tax-Advantaged Municipal Bonds laddered strategies have benefited from this trend, generating nearly $6 billion in year-to-date new sales," said Mr. Moninger.

Eaton Vance ATOMIX Methodology
ATOMIX is calculated based on the findings of a survey of 618 financial advisors from a diverse group of companies. Eaton Vance contracted with a third party to conduct the online survey from August 20, 2018 – September 7, 2018. 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.

About Eaton Vance
Eaton Vance Corp. (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 $459.8 billion in assets as of September 30, 2018, 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%.

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SOURCE Eaton Vance