As inflation increasingly becomes a topic of speculation in the media, it may be top of mind for your clients. Will global economies continue to battle COVID-related setbacks? Will vaccine rollouts lead to a strong economic recovery across sectors? Is inflation a likely outcome? What could the impact of these scenarios be on their financial portfolios?
If your clients haven’t expressed these concerns, proactively broaching the conversation can help put them at ease. Offering yourself as a real person they can come to to ask questions, share anxieties, and discuss how real-life events, like inflation, could impact their finances can position you as one of the first people they come to for advice. Leading with empathy and a relationship-focused approach can also demonstrate the value of your relationship as you support them with much-needed guidance about potential outcomes.
The Inflation Conversation
Helping your clients understand what inflation is, and how it can occur, can provide useful context before examining individual portfolios. Try to refrain from using complex language or industry jargon, while explaining that inflation may happen if people start spending money more rapidly, resulting in rising prices.
Currently, the potential for inflation is heavily influenced by COVID-19. New – and potentially more contagious or deadly – strains of the virus continue to develop. However, there are three vaccines that have been approved for emergency use in the United States so far, including Pfizer, Moderna, and Johnson & Johnson / Janssen. They have been proven to be safe and effective at reducing the risk of severe illness across all strains.1
As of May 5, 2021, 148.6 million Americans have received at least one dose of a COVID-19 vaccine, including about 107.3 million people who have been fully vaccinated by Johnson & Johnson’s single-dose vaccine or the two-dose series made by Pfizer and Moderna.2 As these numbers continue to grow, the general population may become more hopeful and less fearful about the virus, their health, and the future. This can lead to increased spending, which can, in turn, trigger widespread inflation.
Three Potential Inflation-Related Scenarios
Given the current landscape, there are three potential scenarios that may be helpful to review with your clients.
1. Inflation Disappointment
If restrictions on economic activity and social mobility persist, it’s more than likely that inflation won’t occur. In this scenario, inflation would fall well below the target for many developed-market economies, including the U.S.
2. Reopening Reflation
As social activity increases and vaccinated economies reopen, consumer spending, particularly on services, could increase suddenly. With supply unable to respond to the level of demand, inflation would ensue.
However, if the pandemic continues to foster uncertainty, many households could persist in maintaining higher savings rates than pre-pandemic.
3. Inflation Overshoot
As consumers and businesses spend down accumulated savings, broad-based price increases can lead to an expectation of sustained inflation moving forward. As inflation surges, central banks typically soften their stances on rate hikes, causing interest rates to rise sharply.
Easing Client Concerns
Of course, we can’t predict the future. Any of these outcomes are possible, and while the additional context will be helpful, your clients will likely still want to know what they could expect when it comes to their individual portfolios.
BlackRock’s Scenario Tester, available for Envestnet users who subscribe to BlackRock’s Advisor Center, can help you demonstrate possible outcomes. Review recently added inflation-related scenarios within the tool to address these pressing investor concerns, among 30+ others.
You can simply:
- Upload a new portfolio into the Scenario Tester tool.
- Stress test against “2021 Inflation Expectations” to explore these scenarios.
- Analyze the results and share them with your clients in easy-to-understand, client-ready reports.
This is just one tool, among others, you can leverage to help your clients better understand what may lie ahead and how you can work together to confidently prepare for potential outcomes and their impact. To learn more about how you can leverage our financial wellness platform, including subscription offerings like Scenario Tester, contact your Envestnet sales team at 855-769-0806.
- “Different COVID-19 Vaccines,” CDC.gov, last modified on April 23, 2021, https://www.cdc.gov/coronavirus/2019-ncov/vaccines/different-vaccines.html.
- “See How the Vaccine Rollout Is Going in Your County and State,” NYTimes.com, last accessed on May 6, 2021, https://www.nytimes.com/interactive/2020/us/covid-19-vaccine-doses.html.
The information, analysis and opinions expressed herein are for informational purposes only and do not necessarily reflect the views of Envestnet. These views reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.
Tools on BlackRock’s Advisor Center are offered exclusively for financial professionals. Certain tools allow for the generation of client reports.
IMPORTANT: The projections or other information generated by certain Advisor Center tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.
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