Data & Research August 4, 2015

Interest Rates are Top of Mind for Advisers

Many advisers are trying to address client concerns about when rates will rise.
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Advisers’ top concern in the second quarter was interest rates, Fidelity Financial Advisor Solutions found through its quarterly updated “Fidelity Advisor Investment Pulse” research project.

Many advisers say they are trying to address their clients’ concerns about when rates will rise, and by how much, Fidelity found. Following interest rates, advisers’ other concerns are portfolio management, market volatility, fixed income and client guidance (see “Interest Rates and Practice Management”).

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“In an uncertain market environment, we’re hearing that advisers would like to receive support in managing their clients’ emotions,” says Scott Cuoto, president of Fidelity Financial Advisor Solutions. “On the one hand, advisers are looking to set client expectations on a potential rate hike and the longevity of the bull market in equities. On the other hand, advisers want to help their clients understand the impact of what’s happening in the market on their portfolios.”

Couto points to some factors that advisers should keep in mind when discussing interest rates with clients. First, despite the start of a Fed tightening cycle, equities have historically averaged double-digit gains in the year after the first Fed move, he says. While bonds have averaged a slightly negative performance in the first few months immediately following a rate hike, advisers should encourage their clients to take a longer view.

Second, advisers should not recommend that investors move into defensive sectors too quickly, as the end of the business cycles doesn’t typically occur until two years after the first rate hike, Couto says.

Third, advisers should recommend high-quality bonds, given their low correlation to equities, he says. Investment-grade bonds can play an important role in a diversified portfolio, he says.

“Taking the time to look at an individual investor’s portfolio goals, time horizon and tolerance for volatility can help advisers respond in a way that will foster a stronger relationship with the client,” Couto says. “Market fluctuations occur more often than clients may realize, so offering them the historical context and making a plan that helps them diversify and stay fully invested over the long term is important.”

Fidelity’s report is based on a survey of 250 advisers.

Data & Research August 4, 2015

College Costs Rival Retirement as Savings Goal

As one-third of parents are still shouldering student debt, they are highly motivated to help their children pay for school without relying on loans.
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One-third of parents are still shouldering student debt, according to the ninth annual College Savings Foundation State of College Savings Survey. 

Just over half (51%) say that their top strategy for funding their children’s college costs is savings, up from 45% in 2014, and 53% are saving at least some money to put their child through college. Nearly half (48%) have at least $5,000 in their college savings fund. Parents generally plan to rely on savings far more than loans or scholarships, the College Savings Foundation found.

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The most common college savings program is automated monthly savings plans, used by 42% of parents, up from 38% last year. Sixty-seven percent of parents are saving more than $100 a month, and 51% plan to ask family or friends to give money for college savings contributions rather than a material gift.

However, this doesn’t mean that parents expect to give their children a free ride when it comes to their college education; 74% expect their children to chip in, and 49% want their children to get a job to help pay for college. In addition, 69% of parents expect their children to receive financial aid, and 61% expect they and/or their children will take out loans. 

For retirement planning professionals, the numbers highlight that the fact that many people are willing to delay retirement or dip into retirement savings to pay for children’s education. In fact, related research shows as many as a fifth of pre-retirement 401(k) account cash outs are taken to pay for tuition expenses or student loans.

NEXT: Breakdown by parental age group

Among parents age 31-35, 40% have student debt, and among this group, 91% said it made them consider other strategies for their children. Fifty-four percent are saving for their children’s college education, 31% own a 529 college savings plan account, 43% have saved more than $5,000 per child, 50% have automated savings plans, and 38% save between $101 and $300 a month. 

Among parents age 36-45, 29% have student debt, and among this group, 76% said it made them consider different strategies. Fifty-four percent are saving, 37% own a 529 college savings plan account, 50% have saved more than $5,000 per child, 43% have automated savings plans, and 33% save between $101 and $300 a month.

For parents age 46-55, 24% still have student debt, and among this group, 74% said it would make them consider other strategies. Fifty-six percent are saving for their children’s college, 32% own a 529, 61% have saved more than $5,000 per child, 39% have automated savings plans, and 33% save between $101 and $300 a month.

“We are encouraged to see parents across generations avidly saving for their children’s college and that their own student debt is a motivator—not a deterrent—to saving,” says Mary Morris, chair of the College Savings Foundation.

The Foundation surveyed more than 800 parents across the country and income levels.

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