Inflationary Concerns and Market Fluctuations Could Hurt Advisors’ Future Business

The majority of Americans said they would rather have their money sit in cash than endure market swings, according to a new report.


Illustration by RIA Intel

Most Americans said they are still feeling the effects of inflation and are counting on their financial advisors to help them manage that problem, according to a new Allianz Life Insurance Company of North America market perceptions study.

According to the study, 67 percent of Americans said that prices were still too high and that they were struggling financially. Only 28 percent of respondents said that inflation was not affecting them personally.

Of the 1,005 adult Americans surveyed in November 2023 by the insurer, 74 percent said they would stop using their current financial professional if he or she didn’t help them effectively manage ongoing inflation concerns.

High interest rates spurred on by inflation have caused most Americans to look outside the stock market for returns on their investments. Fifty-five percent of those surveyed said they were keeping more money in high-yield savings accounts or money market funds because of the more generous interest rates now being offered. That percentage was highest among millennials, at 65 percent. Fewer Gen Xers (46 percent) and baby boomers (48 percent) agreed with that sentiment.

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Furthermore, 51 percent of millennials said they were too nervous to invest in the market at all right now. Comparatively, less than 50 percent of Gen Xers and baby boomers said the same. A majority of those surveyed (61 percent), however, said they would rather have their money sit in cash than endure market swings.

According to the report, 74 percent of respondents said that they think the market will be very volatile in 2024 and 77 percent think interest rates will continue to rise in the next year.

Allianz Life also found that just 47 percent of Americans think the economy will improve in 2024, down slightly from 48 percent in the fourth quarter of 2022 and 54 percent in the fourth quarter of 2021.

Inflation, market uncertainty, and rising interest rates are all factors that could affect Americans’ perceptions of the market and, in turn, hurt advisory practices.

Client fears about the market was considered the biggest threat to an RIA’s business, according to a recent survey of financial advisors.

An RIA’s revenue is often directly tied to client assets, and when client assets decline – or are kept out of the markets – it hurts an RIA’s bottom line.

Over the past year, high inflation and market volatility have contributed to a decline in advisory growth.

A Fidelity 2023 benchmarking study published in November, found that organic asset growth for wealth management firms sank below 4 percent in 2022, after reaching a high of 8.2 percent in 2021.

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