Advisors down on crypto but give cannabis stocks and passive investing a thumbs up: survey


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Cryptocurrencies are out and cannabis stocks are in, according to the latest investing trends survey by the Financial Planning Association.

The 392 financial advisors who participated in this year’s study, the 2019 Trends in Investing Survey, said that 55% of their clients have asked about investing in marijuana stocks and companies in the past six months.

The proportion of clients inquiring about cryptocurrencies, on the other hand, fell to just 25% this year, from 53% in 2018. This was the first year the survey asked advisors about cannabis stocks.

For their part, advisors remain highly skeptical of cryptocurrencies as an asset class. Just 1% of survey respondents believed they are a viable investment option that has a place in a portfolio. Another 15% said they were a gamble and investors should only invest what they can afford to lose. Thirty-four% said cryptocurrencies were an interesting concept but not an investment yet.

“It’s human nature for people to be always looking for the latest hot story,” said certified financial planner David Yeske, co-founder of registered investment advisor firm Yeske Buie, and current editor of the Journal of Financial Planning.

“I think the results show that advisors are well-grounded and they recognize that part of their job is to talk clients out of foolish ideas,” he added.

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Barry Glassman, CFP and president of Glassman Wealth Services, thinks cryptocurrencies are worth keeping an eye on.

“They could be significant in the future, but to pick a winner when there is no barrier to entry is very hard,” he said. “Ultimately, the most prominent player may not even exist yet.

“Am I willing to allocate funds to cryptocurrencies now?” he added. “No.”

Yeske thinks the biggest takeaway from this year’s edition is the continued shift towards passive investing, including exchange-traded funds, by financial advisors.

“ETFs are now the most used investment by financial advisors by far, which suggests advisors are focused on passive investing,” he said. “I’m reading the tea leaves, but I think advisors want to be efficient on the investing side to leave more time and resources for financial planning.”

The survey results suggest as much. Not only did 88% of respondents say they currently used ETFs, but 45% said they expected to increase their usage of them in the next 12 months and 6% intend to use them less. Eighty percent said they used cash and cash equivalents and 70% use mutual funds, with 19% expecting to increase their use and 19% to decrease it.

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When it comes to individual stocks and bonds, 54% still pick some stocks and 42% buy individual bonds. However, more advisors (23%) expect to decrease their use of stocks than increase (15%) while 16% plan to buy more bonds, versus 13% less.

Lazetta Braxton, a CFP and founder and CEO of Financial Fountains, said she is “anchored in financial planning” and takes a passive approach to investments.

“I primarily use ETFs,” she said. “I don’t pick stocks but I support clients who want to,” she said. “My active management is more in the areas of real estate, tax planning and entrepreneurship — helping clients develop new sources of income.”

When asked what type of asset management they thought provided the best overall investment performance net of costs, 60% of advisors in the survey favored a blend of passive and active, while 29% picked passive and 15% active.

Financial advisors seem to be cautiously optimistic. They do expect lower returns than the average over the last 50 years, but they don’t expect a big disaster or a boom on the immediate horizon.

David Yeske

co-founder of Yeske Buie

“I don’t have a bias either way,” Glassman said. “If I can find an index-like investment that’s tax-efficient and low cost, it’s my first choice.

“But if active management can add value I’ll use it.”

The areas for which Glassman most often uses active managers is with foreign investments and fixed-income, particularly on the lower quality end of the spectrum.

There were some notable trends in investments that advisors use or recommend to clients. The use of variable annuities has dropped to 26% this year, from 32% in 2017. For fixed annuities, the numbers have fallen to 23%, from 32%.

Twenty-six percent of advisors use separately managed accounts, which can have tax advantages over mutual funds for wealthy clients. The same proportion used environmental, social and governance (ESG) funds. A high percentage (31%) of advisors still like mutual fund wrap programs, though the proportion is two points lower than in 2017.

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Financial advisors are a fairly bullish bunch. When asked about their economic outlook, 35% said they were either bullish or somewhat bullish over the next 12 months. That compares to 21% who are bearish or somewhat bearish and 44% who are neutral.

Over a five-year time span, the optimism is more pronounced, with 50% at least somewhat bullish and only 19% at least somewhat bearish. The exception is that more advisors are bearish on the two-year horizon than are bullish, suggesting many expect a volatile run-up to the 2020 election.

The advisors were also asked an optional question on their expectations for returns on equity and fixed income investments in the next 12 moths. The average expected rate of return for stocks was 5.8% and, for bonds, 2.9%.

“Financial advisors seem to be cautiously optimistic,” Yeske said. “They do expect lower returns than the average over the last 50 years, but they don’t expect a big disaster or a boom on the immediate horizon.”

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