Bottom Line

Last week the Fed announced efforts to purchase individual corporate bonds and advisors began putting the most cash back to work with fixed income asset classes again leading the way. Advisors favored intermediate bond funds again this week, a trend beginning to emerge as the investment style garners significant inflows for the third consecutive week.

  • Cash experienced the most significant drop since March declining from 5.20% to 4.09%, which is a 21.30% reduction.
  • Overall advisor sentiment for the week, as measured by net sales activity, was neutral across both risky and non-risky asset classes.
  • However, net sales from non-risky asset classes dipped slightly into outflow territory as advisors purchased more risky asset classes, an occurrence not observed since early April.
  • There were significant net inflows into intermediate bond funds as cash moved from the sidelines. In fact, intermediate bond fund inflows were well above any other asset classes for the week, but trailing YTD inflows to Large-Cap Core by a factor of 2X.

Summary

Allocations to cash were reduced by 21% this past week, the most significant drop in cash levels since crisis began. Advisors had been sustaining cash levels in investor accounts at roughly two times the 2019 average since early April. However, this past week’s activity now restores cash levels back close to pre-crisis averages. While advisors continue to remain risk averse, this week advisors put cash to work by reallocating their non-risky assets into intermediate bond funds with strong outflows from taxable and muni fixed income securities. As signs of recovery start to emerge, advisors continue to acquire new clients at slightly elevated levels again this week. Moreover, client defections were contracted illustrating clients’ financial advice needs amid growing concerns over prolonged volatility.

Key Insights

  • Cash in advised portfolios has reduced to 4.09%, which is marginally above 2019 averages of 3.6%.
  • Advisors favored less risky assets concentrating their purchasing activity 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 Bond, Intermediate Muni, and Short Term Bond fund and ETF styles all 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 were less active modifying client’s expectations around risk and return as the number of changes was 34% lower this week and only 7% above the trailing 52-weeks average.
  • Last week, we saw a continued decline in client defections from their advisor and a modest increase in new clients. Clients continue to draw down on their portfolios week-to-week, continuing a long-term trend observed.

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
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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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