Higher Rates Help RIAs

Sixty-eight percent of those surveyed by InspereX said clients are moving money from stocks to fixed income.


Illustration by RIA Intel

The majority of RIAs said that higher interest rates have had a positive impact on their business, according to a new survey by InspereX, which provides fixed-income trading software for wealth managers.

InspereX surveyed 384 financial advisors in October. Sixty-eight percent of those surveyed said their clients are moving some of their equity allocation into fixed income. Additionally, 65 percent said that higher rates have made their conversations with clients more positive in tone and 52 percent said higher rates have made it easier to win new business.

This a positive sign for an industry that struggled to grow organically last year, due in part to too few new clients and little asset growth from existing clients.

According to the survey 62 percent believe 2-year Treasury rates had peaked (during the survey period in October, the 2-year closed as high as 5.145 percent, while the 10-year closed as high as 4.961 percent), 26 percent said they think rates will hit 6 percent over the next 18 months, and 12 percent said they think rates will be between 7 percent to 9 percent.

However, only 34 percent believe the 10-year treasury yield has peaked, suggesting that many believe the inverted yield curve may be at the end, said InspereX.

Twenty-four percent said they expect 10-year rates to hit 5 percent, 31 percent expect them to hit 6 percent, 10 percent said the rate will be between 7-9 percent and just 1 percent said they think rates will be over 9 percent over the next 18 months.

As of Monday, the 2-year treasury yield was at 4.459 percent, while the 10-year was at 3.954 percent, below the rates recorded at the time of the survey.

InspereX said that its fixed-income sales reached a 10-year high across October and November.

However, investors still need education. Advisors surveyed said many investors misunderstood higher rates. According to the survey, 59 percent of advisors said investors only looked at rates and didn’t understand that they could lose money in fixed income.

“The rising rate environment has meant one thing for fixed income markets: bonds are back and once again at the forefront of the asset allocation discussion,” said John Tolar, head of fixed income sales and trading, in a statement. “Interestingly, in last year’s survey, 74 percent of advisors said they expected the inverted yield curve to continue into the second quarter of 2023, including 40 percent who expected it to last beyond the third quarter. If advisors are correct again, perhaps curve steepening will come to fruition in 2024.”

Both advisors and investors listed geopolitics as their number one worry but diverged with investors listing a stock market correction as their second biggest worry and advisors listing market volatility as second.

More than half (55 percent) did not believe that the 60/40 portfolio was back.

The majority of advisors (66 percent) said they were using individual bonds with clients, and many advisors planned to increase their use of individual bonds in order to generate income for clients. Advisors listed individual bonds as the number one choice to increase income, followed by dividend-paying stocks and bond funds.

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