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Downside Risk is Becoming a Bigger Problem

By Alex Padalka August 9, 2017

With the bull market continuing unabated, financial advisors are increasingly focused on downside protection for their clients, according to a recent survey by Fidelity Institutional Asset Management.

In the second quarter, market volatility and the level of the equities market were advisors’ third and fourth most important areas of focus respectively, according to the survey. Twenty-four percent of advisors cited risk and volatility as their main concern and 12% cited current market levels, Fidelity says.

Advisors are trying to diversify client portfolios to shield against downside risk, Robert Litle, head of intermediary sales at Fidelity Institutional Asset Management, says in the press release accompanying the survey.

Generating yield and income also rose in importance for advisors in the second quarter, the survey found. Many investors looking for income have switched over from bonds to high-dividend stocks as the yield on 10-year Treasuries became comparable to that on large-cap U.S. stocks, Fidelity says, citing Federal Reserve Economic Data. It’s unclear if advisors are recommending clients follow the strategy.

Advisors aren’t as concerned about interest rates, however, which dropped from third place among their main concerns in the first quarter to ninth place in the second quarter. But Fidelity suggests advisors evaluate various interest rate scenarios, given the unpredictability of the pace and direction of interest rate changes.

But the main concerns for financial advisors remain the government and the economy, cited as the top issue by 29% of advisors, and portfolio management, cited as the main area of concern by 26%, Fidelity says. Among their worries are the current administration and the Department of Labor’s fiduciary rule, which aims to force retirement account advisors to put clients’ interests first and went into partial effect in June.