Investors and advisors are feeling stressed by the current
macroeconomic environment, and their optimism has fallen sharply as a result,
according to Nationwide’s annual Advisor Authority survey, released Monday.
Only 39% of investors said they are optimistic about their
12-month financial outlook, down from 49% a year ago. Likewise, 48% of advisors
and financial professionals are optimistic, down 15 percentage points from
2021.
Fifty-four percent of investors said they expect increased
volatility over the next 12 months, but recession fears are 20 points higher
than their volatility ones. This mirrors the level of concern in 2020 during
the height of the pandemic, when 75% of investors were concerned about a
recession.
Advisors and financial professionals are even more worried,
with 82% concerned about a recession, compared with 77% in 2020.
Investors’ inflation concerns in the next 12 months shot up
this year, as well, from 29% in 2021 to 46%. Other top financial concerns are
taxes and protecting assets.
Forty percent of investors also said inflation is the
leading factor that will contribute to volatility over the next 12 months.
Although more than half of investors expect increased market
volatility over the coming year, these expectations are at a four-year low,
according to Nationwide, dropping from 66% in 2019 to 54% in 2022.
“While it’s surprising that expectations about volatility
have dropped among investors, it may indicate that they are coming to grips
with the possibility that volatility is the new normal,” Mark Hackett,
Nationwide’s chief of investment research, said in a statement. “While investor
concerns have lessened, both volatility and inflation are likely to persist in
the year ahead. Financial professionals should be talking to clients about
implications for their portfolio.”
The current environment, with its rising inflation and
declining investment results, has reduced confidence related to retirement. The
survey found that only 47% of investors said they plan to retire about the same
time as they planned, and 20% plan to retire later than planned.
Harris Poll conducted an online within the U.S. from July 27
to Aug. 16 among 506 financial advisors and 521 adult investors.
Time to Increase 401(k) Contributions?
The survey findings show that amid these macroeconomic
concerns, advisors and investors have similar yet contradictory strategies for
the next 12 months.
Forty-four percent of advisors and financial professionals
are counseling clients to contribute more monthly or the maximum amount to
401(k)s or employer-sponsored defined contribution plans.
Forty-three percent are also managing investments more
conservatively, and 33% are considering purchasing or have purchased an annuity
for their clients.
In contrast, only 20% of investors are contributing more
monthly to their retirement accounts, and just 15% are contributing the maximum
amount.
Twenty-seven percent of investors said they are managing
investments more conservatively, and 17% reported that they are delaying taking
Social Security benefits. Only 15% of investors are considering or have
purchased an annuity.
“Investors who are anxious can be reactive and make
unintentional poor financial decisions,” Eric Henderson, president of
Nationwide Annuity, said in the statement. “Now, more than ever, is the time to
leverage the expertise of an advisor to develop a financial plan that leads to security
in retirement.”
Advisors’ Role
Overall, confidence in financial planning remains strong but
appears to be waning, according to the survey. Most investors said having a
plan for their investments helps them feel in control even if they cannot plan
for everything.
They said having a plan also helps them feel more confident
in their investment decisions, even during an extreme financial crisis.
Advisors and financial professionals, by comparison, are
more likely to develop strategies to protect their clients against outliving
savings and generate guaranteed income in retirement.
Fifty-nine percent of investors who do not work with an
advisor or financial professional have a strategy in place to generate
guaranteed income in retirement, compared with 85% of investors who work with
an advisor.
In addition, 52% of those who do not work with an advisor or
financial professional have a strategy to protect themselves against outliving
their savings in retirement, compared with 85% of investors who do work with an
advisor.
While investor volatility expectations are at a four-year
low, the majority still have a strategy in place to protect their assets
against market risk. At the same time, investors with a strategy in place are
also at a four-year low at 60% in 2022.
The number of advisors with a strategy in place to protect
their clients against market risk has steadily increased year-over-year,
reaching a high of 93% this year.
As just 55% of investors currently work with an advisor or
financial professional, advisors have an opportunity to reach and educate the
remaining 45%, as well as revisit and reinforce planning strategies with their
current clients.
“Investors today want to feel confident in their ability to
retire, no matter what is happening in the world,” Henderson said. “This is where
advisors and financial professionals can step in to create a sense of security
and confidence in their clients’ long-term plans.”
Click here for the
original article.