Financial advisors’ overall outlooks returned to a positive territory this month, marking the third time this year they’ve had optimistic outlooks on the global economic system and overall economy. They still, however, have concerns about government policies and uncertain interest rates.
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Advisor confidence increased in July to a score of plus-1 on a scale from minus-100 (most pessimistic) to 100 (most optimistic), according to Financial Planning’s latest Financial Advisor Confidence Outlook (FACO) survey.
That score — compiled from surveys of 199 advisors in July — was up from minus-1 in June, when confidence was down due to concerns about the global economy. June’s minus-1 was a significant drop from a score of 7 in May — the highest it had been since January. Primary points of worry from advisors in June came from political woes in Iran, the shutdown of the Strait of Hormuz, perceived political dysfunction and uncertainty about interest rates from inflation.
Economy looks up as peace deal nears
In July, the economy was the primary driver of advisors’ positive outlooks — a stark turnaround from the month before. The global economic system score rose 17 points from June to minus-34, up from minus-51. It was the single biggest move of the month.
Despite the large increase, global economic unpredictability still seems to be on advisors’ minds: 43% of respondents expect the global economic system to be more volatile over the next three months, 48% expect it to stay the same. Only 9% expect it to be less volatile.
The overall economy is improving as well, scored at 38, just a point under the year’s high score of 39 in January and improving 10 points from last month.
Of the respondents, 48% of advisors expect the economy to grow over the next three months, 42% expect it to maintain. Only 10% expect it to contract.
Inflation, government policy uncertainty grows
Despite July’s positivity about the economy, there are still major concerns among advisors about interest rates as inflation sustains with increased oil prices.
“Interest rate levels directly affect profitability and risk appetite,” one respondent wrote. “Rising rates improve net interest margins but increase credit risk, driving demand for ALM, risk management, and stress testing consulting. Lower rates pressure profits and increase demand for cost optimization and transformation consulting.”
Along with interest rate hikes, midterm elections and political instability are also top of mind for advisors.
Government policy fell in July, now scoring 5, down from 9. This is the second consecutive monthly decline for government policy and the lowest score of the year since April.
Of the respondents, over the next three months only 23% expect monetary policy will have a positive impact on their clients’ financial wellbeing. Twenty six percent expect new legislation will positively impact their clients’ financial wellbeing, and 19% believe it will have a negative impact.
Behavioral outlook
Across the board, advisors expect behavioral practices to remain neutral. Advisors’ expected client risk tolerance remained at minus-5, the same as June, and 67% percent expect it to stay the same over the next three months.
The biggest change in behavioral outlook for advisors is asset allocation. Since June, it has increased four points, from minus-10 to minus-6. Seventy percent of advisors said they expect their advice regarding asset allocation to remain the same over the next three months, and 18% expect it to be more cautious. Just 12% expect it to be more aggressive.
