Have Advisors Grown Complacent About Bonds?
Do advisors even know what to do when interest rates rise? After all, only financial advisors who were practicing before 1981 have experience in both a rising- and falling-interest-rate environment.
What came next was “a benign tailwind for bond returns,” according to sales training consultant Rich White, writing for BenefitsPro. So, he asks, have today’s advisors grown hopelessly “bond complacent”?
He doubts it. And he cites data from the Investment Company Fact Book showing that in 2013, net inflows to U.S. bonds shifted to outflows — to the tune of $80.5 billion, a record. This suggest advisors weren’t doling out the advice they had been in 2009 through 2012, when there appeared to be no end in sight for the Federal Reserve’s zero-interest-rate policy.
So far in 2014, the evidence isn’t as clear-cut. This calendar year through July, net movement has been inbound, with bond fund flows of $62.4 billion.
White’s big takeaway: “During year-end 2014 reviews, make sure to spend time reviewing bond holdings” and driving home the message that monetary policy is subject to change. Adds White, “A little caution in reducing bond durations now may pay off in the years ahead — in terms of better portfolio returns, as well as clients’ confidence in being prepared for a new era of rising rates.”