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Advisors Focused on Setting Client Expectations in Uncertain Environment, According to Latest Fidelity® Survey


BOSTON – Fidelity Financial Advisor Solutions today announced the Q2 2015 results of the Fidelity® Advisor Investment Pulse. Interest rates are top of mind for advisors and returned to the No. 1 spot last quarter – up from No. 3 in Q1. In anticipation of the next Federal Open Market Committee meeting in September, the survey results revealed that "interest-rate fatigue" might be a thing of the past, with many financial advisors trying to address their clients' concerns about when rates will rise, and by how much.

The focus on interest rates played a role in putting other topics under the spotlight for advisors, with portfolio management, market volatility, fixed income and client guidance – in that order – making up the rest of the top five top-of-mind themes.

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

While Fed monetary policy tightening could spark increased market volatility and be unsettling for investors, Couto suggests the ups and downs of the market are inevitable and altogether normal. Advisors should bear a few things in mind when discussing asset allocation with their clients:

Three key considerations:

  1. The first rate hike is not a showstopper – Despite the start of a Fed tightening cycle, equities have historically averaged double-digit gains in the year after the first Fed move. The story is similar with fixed-income. While bonds have averaged a slightly negative performance in the months immediately following a rate hike, advisors can encourage their clients to take a longer view. On average, high-quality bonds have recorded low single-digit gains in the first year after a rate hike. Over two years after the first hike, the average return increases to the double digits.1 The bottomline: don’t bail out at the first signs of volatility. Many of the best periods to invest in U.S. equities have been those environments that were the most unnerving, and selling an investment because of a drop in value does nothing more than lock in the loss and prevent investors from profiting from any subsequent gains.
  2. Don't move into defensive sectors too quickly – Is the first rate hike a sign to move investments toward more defensive sectors? Historically, the first rate hike has taken place during the mid-phase of the business cycle.2 This is a time when the economy is seeing growth, as reflected by strength in corporate earnings. It is also, on average, two years before the late cycle kicks in. When the business cycle does move into the late phase, advisors should encourage their clients to think about investing in utilities, energy, health care, materials and consumer staples – sectors that tend to outperform on a relative basis.
  3. Remember the role of high-quality bonds – Because of the potential for higher rates, some investors are shifting away from investment-grade debt to unconstrained fixed-income. Advisors should help their clients understand that while this may reduce interest-rate risk, it may also add significant credit risk. Given their low correlation to equities, investment-grade bonds play an important role in a diversified portfolio. A multi-sector "core-plus" fixed-income portfolio – with a high concentration in "core" investment-grade debt and the rest in credit-sensitive "plus" sectors – may help to provide attractive risk-adjusted returns while maintaining downside protection through varying economic conditions.

"Taking the time to look at an individual investor's portfolio goals, time horizon and tolerance for volatility can help advisors respond in a way that will foster a stronger relationship with their client," explained Couto. "Market fluctuations occur more often than clients may realize – offering them the historical context and making a plan that helps them diversify and stay fully invested over the long term may help." Whether they serve individual investors, businesses, plan sponsors or institutions, Fidelity offers advisors a range of insights to help them navigate the market. For access to the insights and resources that Fidelity offers, advisors can visit: They include:

  • Market Volatility: Fundamentals for Investors – The financial markets are always in motion, and such volatile market behavior is not unusual.
  • The First Rate Hike - Many expect the first rate hike to take place later in the year. While the exact timing is unknown, history may hold valuable clues for advisors who are looking to understand what a rate hike may mean for their clients.
  • Managing Fixed Income Is About More than Just Interest Rates – To maintain the core objectives of fixed-income as part of a broader portfolio, advisors should also consider credit risk.

The Fidelity Advisor Investment Pulse is a survey that captures the investment topics on the minds of around 250 advisors in order to identify common concerns and deliver resources to help them navigate changing market conditions. Fidelity Financial Advisor Solutions has been tracking advisor sentiment about investing concerns and opportunities since April 2012. This proprietary research enables Fidelity to provide advisors with timely perspectives from their peers, and offer tools to take advantage of the investment opportunities that exist today.

About the Fidelity Advisor Investment Pulse

The Advisor Investment Pulse is an ongoing primary research effort that captures the views of more than 1,000 FFAS advisor clients annually. All FFAS advisor clients in the broker-dealer and registered investment advisor communities are asked to participate in the online survey. These advisors serve a range of clients, including individual investors, businesses, plan sponsors and institutions. Respondents are asked an open-ended question: "Thinking about the investing environment and outlook, and the potential impact on your client portfolios, what investment challenge or opportunity would you say is top-of-mind for you right now?"

The survey reports "Top of Mind" themes of most concern to financial advisors in both their practices and in the financial markets. These themes are distilled from individual financial advisor comments. The chart reflects the most current five themes that represent the most widely held views. Given the variability of the number of responses over time, and the ongoing nature of this effort, confidence levels also will be variable.

Fidelity Financial Advisor Solutions has been tracking advisor sentiment about investing concerns and opportunities since April 2012. This proprietary research enables Fidelity to provide advisors with timely perspectives from their peers, and offer tools to take advantage of the investment opportunities that exist today.

About Fidelity Investments

Fidelity's goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $5.2 trillion, including managed assets of $2.1 trillion as of June 30, 2015, we focus on meeting the unique needs of a diverse set of customers: helping more than 24 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing nearly 10,000 advisory firms with technology solutions to invest their own clients' money. Privately held for nearly 70 years, Fidelity employs 41,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit

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