Bottom Line

Comparing last week to the previous 72 weeks (18 months), advisors’ investing activity slowed from 4 times average to 2 times average transaction volume, as compared to the past 18 months. While the equity markets showed strong performance last week, advisors remained in a neutral risk stance during the shortened trading week, holding about twice as much cash as normal in their investment accounts.

Summary

Advisors are very slowly reducing cash levels. Their attitude toward risk is neutral, repeating last week’s trend, in that both risky assets and non-risky assets saw nearly zero net flows. Clients, when viewed as a group, continue to withdraw twice as much as they contribute to their investment accounts, a trend that has been consistent for the past 18 months. Equity-style mutual funds and ETFs continue to see inflows, while fixed income styles see redemptions. The data suggests that advisors are not yet putting excess cash to work, but they are reallocating assets within accounts from fixed income to equities.

Key Insights

  • Advisors’ strong net redemptions from fixed income mutual funds and ETFs subsided last week. Fixed income net outflows were almost zero last week. This supports a three-week trend where advisors have moved from very bullish on fixed income to neutral.
  • Advisors appear to be dipping their toes back into styles that have seen high redemptions over the past 6 weeks. High yield, real estate, and hedged equity managed products were in the top 10 inflow styles last week after showing up repeatedly in the top outflow list.
  • We look at the number of client risk tolerance changes as a proxy for how advisor and clients are engaging around risk conversations. The number of changes this week is down 23% from last week, but still 60% higher than the normal number of changes. Advisors are actively modifying client expectations around risk and return, although the rate of change is slowing from the high three weeks ago.
  • Cash in advised portfolios is running at about 6.3% over the last three weeks. It has remained at this level now for 4 weeks. This is roughly double the 18-month average of 3.4%, but shows that advisors are being slightly defensive but staying invested in general. The cash build up from 3.4% to 6.5% happened over 4 weeks starting in late February. We now see that the cash is staying high and only slowly being put to work.
  • Transaction volume was down 50% week over week, but is still running at 200% above weekly average since January. Selling transaction counts outpace buying 2 to 1, while net flows are nearly zero, which suggests what is being sold is going into a consolidated holding. This is largely due to selling of individual securities and buying of mutual funds and ETFs. This fits tax-loss selling scenarios.
  • Clients continue to seem unfazed by the market downturn. Client contributions and withdrawals in their investment accounts is running about average when compared to the past 18 months. We see no change in the hiring and firing of advisors, suggesting clients are satisfied with the way their advisors are working through the crisis.

Data Description

Our goal with this weekly compendium of industry metrics and indices is to inform the report’s consumer about the investment, risk and business activities executed by RIAs across the nation. We believe this information will provide advisors with near real time insights that may help them improve their business and client outcomes.

The data included in the RIA Pulse metrics comes from our wealth management solutions databases, which include Envestnet and Tamarac data. We filter the data to those firms and advisors who we have segmented as Registered Investment Advisers (RIAs). The data is de-identified and aggregated to create a representative set of metrics and indices.

We curate the data to eliminate data which we deem to be incomplete, having insufficient history, or have minimal contribution to the metrics. We reevaluate the components and qualifiers of the metrics and indices on at least an annual basis in an effort to keep our RIA index representative of advisors’ inferred attitudes and actual behaviors. “Risk On” references include all individual equities (stocks).

We define higher risk assets as equity focused mutual fund and ETF styles. This includes, but is not limited to US Large Cap, Mid Cap, Small Cap, International, Emerging Markets Equities, Emerging Market Bonds, and High Yield Bonds.

We define lower risk assets (“Risk Off”) as all individual fixed income instruments. Risk Off also includes fixed income focused mutual fund and ETF styles. This includes Taxable, Muni, Bank Loan, and International Fixed Income.

We define risk neutral assets as Cash/Money Markets, Balanced/Asset Allocated, and Alternative styles.

Envestnet’s risk definitions are intended for this purpose only, and are not to be construed as investment advice.

Disclosure

The information, analysis, and opinions expressed herein are for general information only. Nothing contained in this document is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Investing carries certain risks and there is no assurance that investing in accordance with the assets mentioned will provide positive performance over any period of time. Investors could lose money if they invest in accordance with the assets discussed herein. Past performance is not indicative of future results.

Any Index performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. Fees and expenses are not included in the performance of an index. Fees and expenses will reduce performance. An investment cannot be made directly into an index. The information contained herein has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any news feeds, data feeds, market quotes, and other links are provided by independent third parties and are not guaranteed to be accurate, complete, or timely. The news, market quotes, and links provided are shown for your convenience only. Linked web-sites are independent and are not owned or operated by Envestnet Financial Technologies. Envestnet Financial Technologies does not endorse any linked web-sites, nor does Envestnet Financial Technologies guarantee the timeliness, accuracy, completeness or adequacy of any information posted on the linked web-sites. Envestnet Financial Technologies does not necessarily agree with any opinion, outlook, or forecast stated on any linked web-site.

Envestnet Financial Technologies reserves the right to terminate, modify, or change the links, news sources, and market quote sources at any time without notice.

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Written by Frank Coates

Frank is a co-founder of Wheelhouse Analytics, acquired by Envestnet in 2016. Frank Coates has long been recognized for providing innovative technology and data and analytical solutions to the investment management industry. Prior to co-founding Wheelhouse Analytics in 2007, Frank founded Coates Analytics, LP, where as CEO, he pioneered the development of asset flow analytics and dashboard technology in the retail financial product distribution industry. In 2007, Coates Analytics was acquired by PNC Global Investment Servicing (formerly PFPC). Frank is a former Director of Sales for Strong Mutual Funds and Director of Separate Accounts for Dreyfus. He is a highly regarded industry thought leader and is often quoted in industry journals. Frank has more than 20 years of experience in financial services focused primarily on business management, technology, and the distribution of financial products.

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