Advisors and investors alike are more concerned about the likelihood of market volatility in the coming year, with optimism from both groups declining at the start of 2019 compared with the previous year, according to a new report from Nationwide Advisory Solutions.

Additionally, more than half of investors and investment advisors worry there will be an economic recession in the United States within the next 12 months, according to the fifth-annual Advisor Authority survey, entitled “Safe Havens in a Modern World.” The survey was conducted between Feb. 15 and March 4, reaching 1,021 financial advisors (including 507 registered investment advisors and 514 broker/dealers) and 824 investors. Craig Hawley, the head of Nationwide Advisory Solutions, wrote in the report’s introduction that fears of volatility had returned to the industry a decade after the 2008 financial crisis.

“Looking back, 2018 was a year of opportunities and challenges. The second longest running bull market hit all-time highs, then started shifting course with historic levels of volatility and a dramatic correction,” he wrote. “Now markets remain turbulent, as lawmakers continue to dominate the headlines, while gridlock in Washington and global instability continue to impact portfolios.”

In 2019, 66% of investors and 56% of RIAs and fee-based advisors thought volatility in the market would rise within the next year, and 58% of investors and 54% of advisors said they were worried about a possible recession. Investor optimism dropped from 62% to 55% between 2018 and 2019, and advisor optimism fell 11 percentage points, from 66% in 2018 to 55% in 2019 (by contrast, in 2018 investor and advisor optimism rose more than 10 points from the previous year). Nationwide speculated the decline in optimism was due to national and global uncertainty, including the unknown future regarding interest rates, the aftereffects of the tax reform bill, intensifying partisan battles, and a brewing trade war between China and the U.S.

Though previous surveys showed the optimism was higher among investors who used an advisor than those who didn’t, that gap closed to one percentage point in 2019; the optimism of investors with advisors dropped while the level of investors without an advisor remained unchanged.

“One theory is that investors with an advisor are simply more ‘in-the-know’ than those without,” the report read. “This would suggest that, while investors with advisors are less optimistic than last year, this sentiment might be coming from a place of forewarning rather than one of fear.”

Investors and advisors diverge slightly on what may cause volatility; investors viewed political gridlock as the chief driver at 45%. Global instability was the second most cited factor for investors, with U.S. economic performance close behind. One-third of advisors cited interest rates as the most powerful factor in potential volatility, with Washington gridlock and U.S. economic performance cited by 30% of advisors (in contrast, 28% of investors thought interest rates were the primary determining factor in market volatility). Additionally, the number of investors who reported that they increased for the past several years, from 51% in 2016 to 62% in 2019 (the report suggests the increase may reflect “growing uncertainty and declining optimism” on the part of investors).

But slight majorities of both advisors and investors reported they did not feel pressured to revise their investment strategies, and of those that did, majorities said they would take a more conservative and active approach to their investments. Hawley wrote that the fraying positive outlook among investors could mean opportunity for RIAs.

“The advisors poised to succeed in the face of these challenges are those who can differentiate themselves by focusing on holistic financial planning, providing unbiased guided advice and creating the competitive advantage of a unique customer experience,” he wrote.

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