Financial advisers turn surprisingly bullish on the second half

The worst six-month stretch for traditional 60/40 portfolios since 2008 hasn't deterred the financial planning industry from seeing the glass as at least half full for the remainder of the year. The latest results from an ongoing series of adviser surveys from fixed-income platform InspereX depict a surprisingly bullish outlook for the second half of the year.

The findings show that 88% of advisers expect the S&P 500 Index to wrap up the year somewhere between a 10% loss and a 10% gain.

That’s an impressively rosy outlook against the backdrop of an index that's already down nearly 20% from the start of the year, combined with inflation hovering above 8%, interest rates on the rise and an economic recession a virtual certainty.

“I think advisers are bullish on everything turning around,” said Chris Mee, managing director and head of market-linked products distribution at InspereX.

“They’re starting to see inventories picking up and starting to see the bottom on some of these stocks,” Mee said. “Maybe the worst is behind us, and we’re going to dig our way out of it.”

While it's always safe to assume bear markets and economic downturns won’t last forever, the relative optimism that comes through in the survey findings is surprising even to Mee, who has overseen seven of these surveys over the past two years as a way of gauging the changing mood of advisers through the pandemic.

The findings from the most recent survey of 799 advisers showed 70% of the respondents said the average portfolio of their non-retirement clients is down between 1% and 14% so far this year.

Another 21% said clients are down between 15% and 24%, and 3% said they were even on the year.

But general optimism at the adviser level isn’t necessarily coming through at the client level, according to the survey which shows that a third of adviser clients said they're postponing retirement due to the economy.

Mee is reluctant to jump to conclusions on the delayed-retirement data point. While some might interpret that finding as a need to work longer to make up for investment losses, he views it as a reflection of the opportunities that exist in the workforce.

“I gotta believe it’s not just the market,” he said. “I would think it’s the economic environment, including inflation, unemployment, interest rates.”

Mee said he's hearing the same things from his friends and associates.

“People are talking about delaying retirement but they’re saying they have an option and they’re not being forced out like they were during Covid,” he said. “I have some friends who are airline pilots and are negotiating record contracts. Why not stick around a few more years?”

In terms of portfolio allocations, 100% of survey respondents said they're considering alternative investments, 36% said they're introducing clients to individual bonds, 29% said they're using individual municipal bonds, and 28% said they're avoiding bond ETFs where there's no guaranteed return of principal.

On the practice management side, 46% of advisers said in-person meeting aren't the main way they are meeting with clients, while 33% said they are predominantly meeting via phone, and 21% are meeting virtually over Zoom and other video platforms.

While Mee said the wealth management industry has come to fully embrace a hybrid work model that allows more flexible work-from-home options, 66% of survey respondents said the majority of their employees are back in the office full-time.

About a quarter of respondents said they're operating permanently on a hybrid schedule, and 6% of advisers said their team is permanently fully virtual.