Advisers and financial professionals are bracing for a recession, if a relatively light one, according to the results of an annual survey by Nationwide Mutual Insurance Co.’s retirement institute.
Of 511 advisers—including registered investment advisers, broker/dealers and wirehouse brokers—65% expect a recession to hit this year. Nearly half (42%) expect the recession to be “short and shallow,” while about one quarter (23%) predict a significant and prolonged market downturn marked by stagflation and instability, according to Nationwide Retirement Institute’s annual Advisor Authority report.
While adviser expectations of a recession are strong, they are not as strong as the 99% prediction of a recession in the next 12 months The Conference Board Inc. gave in its most recent update on April 12. That economic watchgroup’s top economist also predicted in February a “short and shallow” recession amid rising interest rates and market volatility.
The results of a recession may not necessarily be a bad thing for advisers when it comes to client interaction, according to the Nationwide researchers. Times of turmoil are often when everyday investors look to and need advisers the most, they wrote.
“Whether or not today’s environment turns out to become a full-blown financial crisis, advisers are in a great position to inject calm and guide clients through what’s to come as they have through turbulent moments in the past,” Eric Henderson, president of Nationwide Annuity, said in a statement with the report.
Knowing is Half the Battle
Slightly fewer than half of advisers are preparing their clients for pending financial difficulties, according to Nationwide. In a question list where advisers could check all that apply, 43% are educating clients on market cycles, 43% are adopting strategies to protect assets against market risk and another 43% say they are listening to client needs and concerns, the survey found.
Whether or not advisers engage with investors, fears of a recession among that group are hovering a bit below the majority. The survey, which was conducted in January by The Harris Poll, included 789 investors with investable assets of more than $10,000. Nationwide reported that 39% of those investors believe the U.S. is already in a financial crisis, and 30% believe the U.S. is approaching one.
Of that group, those with an adviser feel less nervous (31% vs. 46%) and more confident (40% vs. 26%) than those without an adviser in their ability to protect their finances in the event of another financial crisis, according to Nationwide.
Having a financial plan for a market downturn is even more important for investors, with 88% noting they feel more confident that they can make the right investment decisions even during extreme financial crises by having an investment strategy.
“It’s clear that having a plan and a trusted advisor makes a difference,” Henderson said. “As advisors help their clients build a plan and consider protection solutions, they should also encourage them to remain focused on their long-term goals.”
Mark Hackett, Nationwide’s chief of investment research, said in a statement that Nationwide’s own economics team is predicting a “moderate, shallow and short recession at this point.” He said that it’s “premature to label today’s environment a crisis. However, it is a good time to revisit your plan with an adviser or financial professional, and we’re seeing more confidence among investors who do so.”
When it came to general market volatility, nearly two-thirds (65%) of advisers think that market volatility will increase over the next twelve months, the results showed. Advisers expect the most common causes of that volatility will be inflation (33%), interest rates (27%) and an economic recession (24%).
Nationwide’s survey of advisers and financial professionals included 274 RIAs, 175 broker/dealers, 128 wirehouse and 55 other financial professionals, according to the Columbus, Ohio-based firm. Among the investors, there were 209 with investable income in the range of $10,000 to $100,000, 203 in the range of $100,000 to $499,000, 167 in the range of $500,000 to $999,000, 106 with $1 million to $4.99 million, and 104 with $5 million or more.