Bottom Line

While crisis-level activity has largely subsided, advisors remain very active relative to “normal” levels of activity we saw during the bull market run. For the past three weeks, advisors have been risk-neutral, with net flows into more risky and less risky assets being near zero. Investment activity data indicates a shift from international equities into US growth equities, and a return to higher yielding fixed income styles.

Summary

Advisors added slightly to cash levels last week. Advisors are neutral when using non-risky assets versus risky assets, which is actually slightly bullish relative to the past 18 months. Clients, when viewed as a group, have slowed the pace of contributing to their investment accounts, but have also reduced their withdrawals from these accounts. The net effect of client contributions versus withdrawals is slightly positive – meaning less money is coming out of investment accounts net-net. Both equity and fixed income mutual funds and ETFs were net flow flat last week. The data suggests that advisors and clients are out of “crisis mode” and are pausing on making any major changes to their portfolio allocations.

Key Insights

  • Transaction volumes were nearly double the 18 month trend.
  • Advisors were neutral last week, both more risky assets and less risky assets seeing almost zero net flows.
  • US large cap core and growth saw significant inflows last week while international equites had outflows that were 2 times higher than the next style with outflows. High yield continued the 4 week trend of being in the top styles for inflows.
  • We look at the number of client risk tolerance changes as a proxy for how advisors and clients are engaging around risk conversations. The number of changes this week was down 22% compared to previous week but still 45% higher than the normal number of changes. Advisors are actively modifying client’s expectations around risk and return, although the rate of changes is slowly returning to a normal rate.
  • Cash in advised portfolios is running at about 6.1% up from 5.0%. We believe this was due to a slight net outflow in equities.
  • Client contributions and withdrawals in their investment accounts are running slightly lower over the past 3 weeks when compared to the past 18 months.
  • Last week, the number of new clients added was slightly higher than the past 18 months, and the number of clients leaving their advisor was slightly lower than over the past 18 months. We believe this data supports the theory that clients are finding comfort in advisors calm advice in this 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 those firms and advisors who we have segmented as Registered Investment Advisors (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 includes all individual equities (stocks).

We define risky 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 non-risky assets 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.

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 portfolios mentioned will provide positive performance over any period of time. Investors could lose money if they invest in accordance with the portfolios discussed herein. Past performance is not indicative of future results.

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. News feeds, data feeds, market quotes, and other links on this Envestnet Enterprise Portal are provided by independent third parties and are not guaranteed to be accurate, complete, or timely (including any information or data sources provided by Advisor or provided by third parties at the direction of Advisor). 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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