Three quarters of fee-based advisors and registered investment advisors say their clients have the jitters about the potential financial impact on them from the fiscal cliff, with their biggest concern being the possibly of rising taxes, according to a new survey released today by Jefferson National.
Advisors said their clients are asking most about tax deferrals. Eighty-five percent of advisors polled said a low-cost, tax-deferred investing solution would benefit their clients if taxes rise.
"Poised on the brink of the fiscal cliff, the political stalemate that is gripping Washington and driving volatility in the market is clearly a top concern of advisors and their clients, and this is driving an urgent demand for tax-advantaged investing solutions," Mitchell H. Caplan, chief executive officer of Jefferson National, said in a statement.
Financial advisors will be forced to grapple with the threat of rising taxes, as the nation's tax bill will escalate by $500 billion—an average of nearly $3,500 per household—if no solution to the fiscal cliff, automatic federal tax increases and spending cuts, is reached by year-end, according to the nonpartisan Tax Policy Center. Jefferson National officials claim that tax-deferred investing vehicles are a key component for lowering the impact and accumulating retirement savings.
The threat of ongoing volatility was cited as a primary concern by more than 67 percent of advisors concerned about the fiscal cliff, according to Jefferson National's survey. RIAs and fee-based advisors are also increasingly turning to alternative investment strategies to navigate the current market, Jefferson National notes.
Jefferson National officials say its research also indicates that tax-efficiency will continue to become increasingly vital to advisors as they continue to allocate more to alternatives in an effort to manage risk and optimize overall portfolio performance. More than 68 percent of advisors have increased their use of alternative investments, and more than 61 percent believe that alternatives will become even more important than traditional investments in the future. Likewise Cerulli research indicates that in five years the use of alternative strategy funds could increase more than a 245 percent.
"As whipsaw markets create chaos for portfolios, and the threat of rising taxes continues to magnify their clients' anxiety, a clear majority of RIAs and fee-based advisors believe that more alternative strategies and more tax-deferral are needed to meet these challenges head-on," Caplan said.
Jefferson National survey queried 250 RIAs and fee-based advisors in a poll conducted on Dec. 12. Louisville, Ky.-based Jefferson National is a provider of tax-deferred investing solutions for RIAs, fee-based advisors and the clients they serve.