28 November 2020

Retirement Confidence Flags Amid Election, COVID Jitters

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The run-up to the election and ongoing worries about the coronavirus pandemic had investors nervous in October, with measures of retirement confidence and risk tolerance down, according to advisors polled in the latest Retirement Advisor Confidence Index, Financial Planning's monthly barometer of business conditions for wealth managers.

"Clients are starting to feel the market uncertainty surrounding lack of stimulus, increased COVID-19 cases, drawn out vaccine conversations, the tightening of presidential and senate polls — all coalescing in heightened volatility," one financial advisor says.

The component of RACI that tracks clients' risk tolerance tumbled 6.6 points to 37.8 in October, nine points down from the same period last year and the first time that metric dipped below 40 since May.

RACI scores below 50 signify a decline in investor confidence, and scores above that level indicate a decline.

Many of the advisors polled in the latest RACI survey report that clients were on edge about the election — irrespective of the outcome — and responded with reassurances about positioning them for the long term.

"Clients [were] nervous about the election, but are taking the longer view that while volatility will be up regardless of whom is elected president, and how the House and Senate reconstruct, markets will settle in late 2021 and continue to grow," one advisor says.

Overall, the composite RACI score checked in at 47.5, off 4.4 points from the previous month and down 3.9 points from the same period a year ago. October saw the first composite score below 50 since May.

"A lot of clients still have a lot of uncertainty," one advisor says.

Many advisors describe their approach to the anxieties of 2020 as a sort of holding pattern, where they are reluctant to make any major changes in their retirement strategies

"There is a lot of wait and see," one advisor says. "People putting spending on hold."

The total level of retirement contributions in October ticked down a point-and-a-half from September, checking in at 54.8, off 5.9 points from the previous year.

But advisors also saw a flight from equities among many retirement clients. The component of RACI that tracks those assets tumbled 6.9 points to a mark of 50.8, the lowest score since July and off 6.8 points from October 2019.

One advisor describes opting for a more deliberately cautious approach due to the ongoing uncertainty surrounding the response to the coronavirus.

"We are taking a somewhat more bearish position in the markets as a result of the continuing prevalence of the COVID-19 virus," one advisor says. "Until a proven vaccine demonstrates that the virus can come under control, we are moving our clients into somewhat more conservative positions."

Several advisors describe a general malaise among clients, one born of a year of social, economic and political upheaval that has sapped investors' appetite for risk or really doing much of anything that would dramatically alter their approach to retirement planning.

"Everyone is pretty much keeping their head down and just trying to get through 2020," one advisor says.

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