Data & Research April 18, 2023

65% of Financial Advisers Braced for Recession

The majority (42%) believe it will be a “short and shallow” decline, according to an annual Nationwide survey.  

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Advisers and financial professionals are bracing for a recession, if a relatively light one, according to the results of an annual survey by Nationwide Mutual Insurance Co.’s retirement institute.

Of 511 advisers—including registered investment advisers, broker/dealers and wirehouse brokers—65% expect a recession to hit this year. Nearly half (42%) expect the recession to be “short and shallow,” while about one quarter (23%) predict a significant and prolonged market downturn marked by stagflation and instability, according to Nationwide Retirement Institute’s annual Advisor Authority report.

While adviser expectations of a recession are strong, they are not as strong as the 99% prediction of a recession in the next 12 months The Conference Board Inc. gave in its most recent update on April 12. That economic watchgroup’s top economist also predicted in February a “short and shallow” recession amid rising interest rates and market volatility.

The results of a recession may not necessarily be a bad thing for advisers when it comes to client interaction, according to the Nationwide researchers. Times of turmoil are often when everyday investors look to and need advisers the most, they wrote.

“Whether or not today’s environment turns out to become a full-blown financial crisis, advisers are in a great position to inject calm and guide clients through what’s to come as they have through turbulent moments in the past,” Eric Henderson, president of Nationwide Annuity, said in a statement with the report.

Knowing is Half the Battle

Slightly fewer than half of advisers are preparing their clients for pending financial difficulties, according to Nationwide. In a question list where advisers could check all that apply, 43% are educating clients on market cycles, 43% are adopting strategies to protect assets against market risk and another 43% say they are listening to client needs and concerns, the survey found.

Whether or not advisers engage with investors, fears of a recession among that group are hovering a bit below the majority. The survey, which was conducted in January by The Harris Poll, included 789 investors with investable assets of more than $10,000. Nationwide reported that 39% of those investors believe the U.S. is already in a financial crisis, and 30% believe the U.S. is approaching one.

Of that group, those with an adviser feel less nervous (31% vs. 46%) and more confident (40% vs. 26%) than those without an adviser in their ability to protect their finances in the event of another financial crisis, according to Nationwide.

Having a financial plan for a market downturn is even more important for investors, with 88% noting they feel more confident that they can make the right investment decisions even during extreme financial crises by having an investment strategy.

“It’s clear that having a plan and a trusted advisor makes a difference,” Henderson said. “As advisors help their clients build a plan and consider protection solutions, they should also encourage them to remain focused on their long-term goals.”

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Keep Calm

Mark Hackett, Nationwide’s chief of investment research, said in a statement that Nationwide’s own economics team is predicting a “moderate, shallow and short recession at this point.” He said that it’s “premature to label today’s environment a crisis. However, it is a good time to revisit your plan with an adviser or financial professional, and we’re seeing more confidence among investors who do so.”

When it came to general market volatility, nearly two-thirds (65%) of advisers think that market volatility will increase over the next twelve months, the results showed. Advisers expect the most common causes of that volatility will be inflation (33%), interest rates (27%) and an economic recession (24%).

Nationwide’s survey of advisers and financial professionals included 274 RIAs, 175 broker/dealers, 128 wirehouse and 55 other financial professionals, according to the Columbus, Ohio-based firm. Among the investors, there were 209 with investable income in the range of $10,000 to $100,000, 203 in the range of $100,000 to $499,000, 167 in the range of $500,000 to $999,000, 106 with $1 million to $4.99 million, and 104 with $5 million or more.

In Practice April 18, 2023

Investment Group Calls On FTC to Exempt Execs From Non-Compete Ban

The IAA wants to keep non-compete clauses for employees with access to proprietary investment data, as the end of the FTC comment period looms.

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A trade organization representing fiduciary investment advisers is pushing back on the Federal Trade Commission’s proposed ban on non-complete clauses ahead of Wednesday’s deadline for public comments.

The Investment Adviser Association, which broadly agrees with the proposed ban on non-competes, called on the FTC to exempt senior-level employees involved in the creation of proprietary items, including strategy. In a letter to the FTC, the organization also asked that partners or other equity holders be subject to non-compete clauses in their contracts, because these employees could also carry sensitive trade information if hired elsewhere.

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The pushback comes as the FTC is looking to follow up on an executive order from President Joe Biden to ban employers in all industries, including retailers and restaurants, from putting non-compete clauses in employee contracts, essentially penalizing workers for taking a job with a competitor. The ban, which already exists in states such as California, Illinois, and Massachusetts—but not the financial industry hub of New York—has drawn a close look from the financial services sector, as non-competes can be used to discourage employees with proprietary information or investment tactics from leaving for competitors.

States Lead

The FTC has argued that non-competes lower wages for workers by preventing them from accepting work elsewhere, and reducing their wages also has the effect of reducing wages for those not subject to non-competes themselves. Non-competes also prevent businesses from forming and, therefore, stifle innovation, according to the regulator. The FTC has noted that states which already ban non-competes have gotten along just fine, if not better, and the arguments against a ban have not been borne out.

The IAA, for its part, also requested that the FTC explicitly say that non-solicitation and non-disclosure agreements be excluded from the proposed ban so that employers may keep contract language penalizing an employee for poaching clients or soliciting them directly after leaving a firm. The proposal itself makes no mention of these types of agreement and is not written in a way that would include them, but given their importance to the industry by protecting sensitive client contacts and confidential information, the IAA asked that those agreements’ exclusion be made explicit.

The Washington, D.C.-based association also asked the FTC to scrap its retroactive provision and only enforce the ban on new contracts going forward. It also requested a transition period of 18 months before enforcing the ban.

Workers Follow

As it currently stands, the proposal would ban all non-compete contracts, which are defined as employment agreements with the effect of preventing an employee from starting a business or accepting employment elsewhere, The FTC proposal would supersede all related state laws.

According to the FTC, certain contract provisions, such as requiring training fees to be repaid upon leaving an employer or an overly broad non-disclosure agreement, can amount to a “de facto” non-compete agreement and would likewise be banned.

The ban would also prevent employers from representing to employees that they are subject to a non-compete, and it would require employers to notify all current employees within 45 days of the compliance date of the proposal that their duties under their non-compete are void. Affected businesses would also have to notify affected former employees, but only if their contact info is “readily available.”

The FTC will accept public comments through Wednesday, April 19.

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