David R. Evanson

The Career Advisor, Summer, 2004

Since March of this year, Rockville, Maryland-based Rydex Investments has been polling financial planners on their feelings about the present and future state of the economy as well as the market to produce something called the Advisor Confidence Index. Here’s how it works. The index captures the views of 150 advisers with the following four questions:

Whatzzs your view on the current state of the overall U.S. economy?
Whatzzs your view on the expected state of the overall U.S. economy in the next six months?
Whatzzs your view on the expected state of the overall U.S. Economy in the next 12 months?
Whatzzs your outlook on the overall U.S. stock market for the next six months?

Answers range from 5, which designates Very Positive, to 1 which designates Very Negative. A fifth question asks for comments on the preceding four which helps sort out the reasons behind the sentiment.

The index got off to a good start from March to April, rising almost two points, but trailed off during May. The decline is attributable to the usual suspects. According to Ramy Shaalan, vice president of AdvisorBenchmarking for Rydex, “The decline in advisers’ longer-term confidence in the economy has been triggered by the continued violence in Iraq, uncertainties about the November presidential elections, skyrocketing oil prices, potential rate hikes and renewed fears about inflation.”

While it may be tempting, Shaalan is not encouraging advisers to use the Advisor Confidence Index in any of their client interactions. “This is a leading indicator, so it speaks to expectations, not historical data like the Consumer Price Index. In addition, an asset allocation is based on a more holistic set of facts and circumstances.” Instead, he says, “The Advisor Confidence Index captures the sentiment of advisers to allow them to benchmark their feelings against their peers.” That is, are your thoughts and feelings about the market and the economy in sync with other planners, or wildly at odds with other planners?

According to Marvin Barron at TGS Financial Advisors, Media, Pa., who is one of the 150 advisers who participate in the survey, “It’s a little early in the game to see if it has any predictive value.” He added that over time it may become extremely helpful however. “I think clients are well aware that there are a wide number of opinions out there, and this represents one more. However, what’s really valuable is series data over time, which this will eventually provide.”

Dick Coe at Coe Financial Services, Wichita, KS, also a participant in the survey, says he would be alarmed if the index ever indicated he was less enthusiastic about the future than his financial planning peers. “I am more optimistic than most people. I do have that bias. If this index shows that I was more pessimistic than my peers, it means we’ve got real problems.”