Advisors Wary of Interest Rate Hike

The prospect of rising interest rates was top of mind for financial advisors in the fourth quarter of last year, according to a new survey.

The prospect of rising interest rates was top of mind for financial advisors in the fourth quarter of last year, according to a new survey.

Fidelity Financial Advisor Solutions said its Q4 survey showed interest rate concerns leaped from the third-biggest concern in the third quarter to the top concern during the last quarter of the year.

In a press release, Scott E. Couto, president of Fidelity Financial Advisor Solutions, said interest rates have been an area of focus for financial advisors for well over a year. But he said the potential for higher interest rates in the near future shouldn’t paralyze advisors.

“Even in an uncertain interest rate environment, there are some immediate actions advisors may take to help their clients generate income, particularly those clients in retirement,” he said.

In particular, Couto said advisors should look at how fixed income can play a role in their clients’ portfolios. He also said they should keep in mind that interest rates may settle at a lower than expected level.

Couto encouraged investors to think about treasuries, mortgages and investment-grade corporate bonds, which are the “main building blocks of most core bond funds.” He said those investments provide diversification in a portfolio because those assets tend to have a negative correlation to equity returns.

Finally, Couto said advisors should be sure to put short-term volatility in context for their clients, helping them maintain a long-term outlook.

“Significant market fluctuations occur more often than clients realize, and providing them with the historical context can help,” he said. “It’s not unusual to have more than one correction in the course of a bull market.”

In addition to interest rate concerns, other top concerns for advisors included “market volatility/downside risk/avoiding a meltdown” and “portfolio management/investment allocation.”

A sampling of the top 5 concerns is provided in the below infographic.