As the latest consumer price index data shows the stubborn momentum of inflation, more pressure is being placed on financial advisers to provide clients with solace and portfolio protection.
A new research report from State Street Global Advisors shows inflation is a top concern among investors.
“The top two questions advisers are hearing from their clients today are, ‘Is now a good time to invest?’ and ‘How can I protect my portfolio against inflation,’” said Allison Bonds, head of private wealth management at State Street Global Advisors.
While nearly nine out of 10 survey respondents credited their financial adviser with helping them remain confident during this period of rising inflation and market volatility, the challenge for advisers continues to mount.
Despite ongoing claims by politicians and policymakers over the past two years that inflation hovering at a 40-year high is transitory, the reality has been punishing for investors and consumers. The financial markets were caught flat-footed Tuesday morning when the August CPI numbers came in higher than expected, signally more aggressive interest rate hikes by the Fed.
The SSGA survey revealed that among those working with a financial adviser, about three-quarters have discussed inflation with their adviser, including how inflation will impact their investment goals in both the short and long-term.
The survey of nearly 250 investors with at least $250,000 worth of investible assets showed that about half agreed it is prudent to work with a financial adviser. But there are generational divisions when it comes to seeking and paying for advice.
Gen X respondents were the least likely to work with an adviser in today’s volatile markets. Only 42% agreed it is better to have the guidance of an adviser, compared to 63% of millennials.
The top two reasons Gen X investors — those born between 1965 and 1980 — are reluctant to work with an adviser are they prefer to have full control over their investment decisions, and they don’t trust that financial advisers have their best interests in mind.
Gen Xers are the most concerned about rising inflation, with 88% reporting that inflation is a top concern. A potential conflict with that general attitude is that this generation is also the least confident about their ability to afford retirement and staying the course with their current investment strategy.
Bonds theorized that Gen X investors are more cautious about seeking out financial advice because of their experiences of the tech bubble in the late 1990s, followed by the housing market bubble in 2008.
“When you have a front-row seat to some of those things, it’s more reasonable why they would be less trusting of financial advice,” she said. “What’s ironic is they’re probably the generation that needs financial advice the most because so many of them are sandwiched between caring for aging parents while still having kids at home and trying to save for retirement.”
Even though the members of Gen X have generally distinguished themselves as do-it-yourself investors, Bonds said the financial planning industry still could step up and fill the void by catering to this segment of consumers.
“The financial services industry hasn’t really catered to Gen Xers as much as it has to other generations,” she said. “They pay attention to baby boomers because that’s where the wealth is, and we’ve seen the focus on millennials through robos and digital advice. But Gen X has been potentially overlooked even though they now have wealth and a ton of financial responsibility.”
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