RIAs’ economic optimism holds steady, but concerns are brewing

While RIAs are still leaning towards tempered optimism on the economy, they’re also expressing heightened concerns about inflation and market volatility, according to the Second Quarter Economic Outlook Index by Security Benefit.

The second edition of the quarterly pulse research, put together in partnership with Greenwald Research and DPL Financial Partners, found that RIA sentiment on economic conditions maintained a steady score of 58 on a 100-point scale, with 0 being “extremely pessimistic” and 100 signaling an “extremely optimistic” view.

While the stock market has been overwhelmingly Zenlike over the summer so far, that could be the proverbial calm before the storm as half of the surveyed advisors expect the stock market to get choppier sometime over the next 12 months compared to 2023.

“With the 2024 US presidential election ahead, many RIAs are not concerned about a major equity market downturn over the next 12 months,” Mike Reidy, national sales manager for Security Benefit's RIA channel said in a statement. “However, they do anticipate that the market will experience a higher level of volatility than experienced in 2023.”

With the personal consumption expenditures inflation gauge currently at 2.6 percent, four in ten advisors in the survey said they are extremely or very concerned about inflation and international conflicts negatively impacting equity markets.

The concern is markedly higher among RIAs than their clients, Security Benefit said, with only 47 percent of RIAs believing inflation will fall within the 2-2.9 percent range for the second half of the year, down from 57 percent last quarter.

For what it’s worth, Wednesday’s inflation report from the Bureau of Labor Statistics showed the consumer price index clocking in at +3.0 percent on a year-on-year basis in June. Month-on-month, the BLS reported a CPI read of -0.1 percent and core CPI at +0.1 percent, representing a modest but definite slowdown in inflation broadly.

“We will likely see rates remain the same over the next few months, with a potential decrease late in the year, though conditions like geopolitical developments and other political uncertainty are worrying advisors and their clients,” Reidy said.

The political environment proved to be a source of anxiety for advisors and their clients, with 80 percent of RIAs reporting that their clients are concerned about the impact of politics on investments over the next 12 months. A third of advisors (32 percent) expect the political climate to negatively affect the investment landscape, while 15 percent foresee a positive impact.

Amid growing concerns over market volatility for the remainder of the year, a strong 80 percent majority of RIAs say that their clients highly value protection against investment loss. Still, only 50 percent believe that downside protection products can play a valuable role in client portfolios.

With choppy markets on the menu, Reidy said there’s a strong case to be made for annuity products in mitigating investment risk.

“The more risk-sensitive the client, the more guaranteed principal products make sense as part of their portfolio mix,” he said.

Virtually half (49 percent) of RIAs in the Security Benefit survey agreed that a client’s age is important in determining the necessary level of downside protection, while 46 percent believe that investment allocation is a critical factor.