Election and Policy Aftermath Weigh on Financial Advisors

BOSTON, Oct. 20, 2016 /PRNewswire/ -- Politics, policy and how markets react to the upcoming elections are among the top issues concerning advisors now, according to the Q4 Eaton Vance Advisor Top-of-Mind Index (ATOMIX), a quarterly survey of more than 1,000 financial advisors.

• 25% of advisors said the U.S. presidential election is "top-of-mind"
• Protecting wealth from market volatility remained the top concern on the ATOMIX Survey for the fifth consecutive quarter, but dropped from 129.7 to 116.4 on the ATOMIX scale
• While almost half (48%) of advisors noted concerns about generating income rose over the past year, its ATOMIX rating fell slightly to 114.0
• The importance of reducing taxes stayed flat from Q3 to Q4, scoring 71.7

Nearly all advisors (95%) expect the upcoming election to impact markets, with almost six in 10 (57%) believing the effect will be negative. Advisors predict the Federal Reserve's decision about interest rates will be the biggest driver of market volatility over the next six months, closely followed by the U.S. presidential election and the pace of economic growth. Thirty-nine percent of advisors anticipate interest rates will go up before year-end, while another 41% expect the Fed to act early in 2017.

"Macro events have taken center stage in advisors' minds this quarter and caused a lot of uncertainty," said John Moninger, managing director of retail sales. "Uncertainty is unsettling, but advisors can help clients navigate through periods of market volatility by discussing long-term goals and reviewing the tactical plans in place to help meet or exceed those goals."

In this politically charged environment, advisors report clients continue to worry about volatility, with 76% of advisors stating clients are motivated by fear and 69% reporting clients view volatility as a risk rather than an opportunity. Advisors themselves are wary of volatility, with 55% reporting they associate the term "volatility" with uncertainty. Interestingly, only 12% associate the term "volatility" with losing money.

Political priorities  

Nearly all advisors surveyed are talking about politics with their clients – 39% state their clients raise the subject, 30% say they raise the topic themselves, and 26% report politics came up as side conversations. Interestingly, female advisors see the election as having a larger potential influence on the U.S. stock market than their male counterparts, with 28% versus 20%, respectively, predicting a significant impact. As a result, 24% of female advisors list the election as their most important consideration, compared with 15% of males.

The majority of advisors would like to see changes to government policy as a result of the election: 51% prefer moderate changes, 40% prefer big changes and only 10% are comfortable with current policies. The top three issues advisors would like to see addressed by the new president and Congress are tax simplification (56%), investing heavily in national infrastructure (38%), and deficit reduction or entitlement reform (36%). Millennial advisors have a different preference. They tend to have more millennial clients and would like to see government policies that invest heavily in jobs (53% versus 32% of all advisors) and defense (30% versus 19%).

"Advisors and their clients are anticipating the results of the election and are cognizant of the policy implications on their clients," added Moninger. "Their opinions vary, but there is strong engagement across demographics."

Market outlook   

Advisors continue to follow a "wait-and-see" approach as political and policy decisions emerge over the next few months. More advisors report a neutral attitude to both equity and bond markets for the short term. Looking out one year, advisors are bullish on equities and bearish on bonds.

In today's challenging yield environment, advisors' top strategies for generating income include municipal bonds, favored by 61%, high-yield bonds (59%) and multistrategy (56%). More than half (57%) of advisors view corporate credit as attractive, given the rally in high-yield and investment-grade bonds. Top strategies for the next 3-5 years are multisector bonds (33%) and laddered bond portfolios (20%).

"Investing in bonds with low and negative yields requires confidence and certainty, both of which have been suddenly eroded," said Kathleen Gaffney, co-director of diversified fixed income. "Holding a little bit of everything, including cash, makes a lot of sense right now. Taking a long-term view and building a diversified portfolio is a great approach in an uncertain world."

Taxes   

Most responding advisors' clients are aware that distributions from mutual funds might impact their tax bills. However, close to half (47%) are unclear on how to address this. The majority of advisors (69%) are engaging in tax loss harvesting. An even greater number (78%) recommend that their clients hold municipal securities and among those that do, 82% turn to munis for tax benefits.

"Taxes are an ongoing challenge for advisors and their clients, but they can also serve as a key point of differentiation," said Moninger. "The majority of advisors today are focused on addressing tax challenges, but there is still room to further educate clients about the impact and benefits of tax-efficient strategies."

Eaton Vance ATOMIX Methodology  

ATOMIX is calculated based on the findings of a survey of 1,002 financial advisors from a diverse group of companies. Eaton Vance contracted with a third party to conduct the online survey from September 2, 2016 – September 28, 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 $343.0 billion in assets as of September 30, 2016, 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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