Bottom Line

Last week was a continuation of the new “normal” as advisors favored non-risky assets with increased attention centered on intermediate fixed income – even at today’s historically low rates. Otherwise, advisor activity was spread across many categories with no identifiable pattern emerging.

  • Cash crept up to its prior month ending watermark inching from 5.11% to 5.25%, which is a 1.67% increase.
  • Advisors doubled down on non-risky assets as net inflows into non-risky asset classes persisted while net outflows from risky assets classes precipitated further.
  • There was strong buying activity across all the major fixed income categories again this week with intermediate bonds garnering the largest net inflows.
  • Conversely, International Developed and Emerging Markets continue to fall out of favor, an allocation trend we have observed year-to-date.

Summary

Cash increased marginally from 5.11% to 5.25% last week. Cash is sustaining at roughly two times the average since early April. Advisors remained risk averse again this week favoring less risky assets, which is a continuation of long-term investing behavior. New client acquisitions were noticeably higher, rising above the prior 8-week trend. Moreover, client defections were contracted again this week illustrating clients’ financial advice needs amid growing concerns over prolonged volatility. We observed strong buying of Intermediate Bond, Short Term Bond, and Intermediate Municipal Bond mutual fund and ETF styles. In equities, Large Cap Core funds dropped out of favor this week, a short-term reversion from its positive YTD net inflows.

Key Insights

  • Cash in advised portfolios is sustaining at two times long-term averages at 5.25%.
  • Overall transaction volumes were dampened slightly from the prior week, while trending marginally above the average in 2019.
  • Advisors favored less risky assets concentrating net positive flows into intermediate fixed income categories. We define this as slightly risk averse, which over time conforms with our findings that advisor’s take a slightly risk off position.
  • Intermediate, Short-Term, and Intermediate Muni fund and ETF styles experienced strong net inflows.
  • We look at the number of client risk tolerance changes as a proxy for how advisor and clients are engaging around risk conversations. Advisors appear to be once again actively modifying client’s expectations around risk and return as the number of changes was 41% higher this week and 25% above the trailing four weeks.
  • Last week, we saw a continued decline in client defections from their advisor and a modest increase in new clients. Clients continue to show strong loyalty to their current advisor.
  • 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.

About the Data

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 website.

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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