Heightened economic uncertainty and increased stress among clients has seen financial adviser business sentiment plunge into the red for the first time in three years, research has found.
More than half of financial advisers expect business conditions to be worse next quarter compared to the current one. And the research says advisers are finding more clients deferring retirement and preferring to continue to earn an income from employment as a way of riding out the economic uncertainty, which is having an impact on adviser sentiment.
CoreData Research’s latest Adviser Pulse Check survey has found that 52 per cent of advisers expect business conditions to be somewhat worse (46 per cent) or much worse (6 per cent) next quarter.
This is in stark contrast to the previous quarter where one in five (22 per cent) of advisers expressed a negative outlook, and the quarter before that the figure was only one in eight (12.5 per cent).
In the current quarter one in five (20 per cent) advisers expect conditions to be somewhat better (19 per cent) or much better (1 per cent).
The survey of 366 advisers reflects what CoreData founder and global CEO Andrew Inwood says is “rising economic uncertainty and increasingly stressed customers”.
“Advisers report that clients are showing signs of increasing stress as they look for new ways to increase their income [and] decrease spending,” Inwood tells Professional Planner.
“Increasing numbers of customers are deferring retirement to manage the economic certainty.”
Inwood says “a normal stress reaction” to what people see as an uncertain economic outlook is to work longer to save more to build up their retirement savings.
“It’s kind of a human reaction to what other people might call sequencing risk,” he says referring to the risk of poor investment returns in the lead-up to or shortly after retirement, which can have a disproportionately severe effect on a superannuation account balance.
“It’s the unexpressed [response to] sequencing risk: we think the next couple of years are going to be bad, so we’re going to reduce our sequencing risk. We’re basically working through the bad time and retiring into the good side.”
That’s having flow-on effects for advisers and their businesses, but Inwood says the decline in adviser sentiment is probably reflecting what’s going on with clients rather than significant weakness in advisers’ businesses per se.
He says it’s unlikely that “this downturn in business sentiment from advisers is because they’re feeling stressed in their own businesses, which they say they’re not, or whether they’re just reflecting what they’re getting from their customers, which I think they are”.
“[Clients are] coming in and saying I want to trim up my spending… I’m going to defer retirement, I’m making a bunch of decisions, which are facing into a downturn,” he says.
“There’s no evidence to suggest that adviser businesses are actually decreasing at the moment – in fact, the evidence is the reverse – but they’re facing into increasingly negative sentiment from the people that they’re providing advice to.”
Inwood says several CoreData confidence trackers show that investor and business sentiment has become defensive, with consumer economic confidence at three-year lows and high-net-worth Australians retreating to cash.
“The Australian data is slightly out of sync with American and European data – where in particular the rich have started to return to the equities markets,” Inwood says.