Market volatility remains a top concern for advisers, according to the latest Adviser Top-of-Mind Index by Eaton Vance. 

Although managing market volatility fell to 110.5 on the index this quarter, it’s still the top worry for advisers. However, the current score falls well below the peak of 129.7 during the third quarter of 2016.

According to the index, 72% of advisers believe the U.S. political environment will be the biggest source of market volatility for the remainder of the year. Meanwhile, 64% expect U.S. market volatility to increase in the next six months, 64% are recommending clients maintain current portfolio allocations, and 46% are advising clients to hold more cash now than they were one year ago.

“Adviser and client concerns dropped this quarter as markets rallied and volatility subsided,” explains John Moninger, managing director of retail sales at Eaton Vance Distributors. “However, there is an underlying feeling of wariness as we head into September, driven by political uncertainty, geopolitical issues and the pace of U.S. economic growth.”

Fifty-three percent (53%) of advisers feel their clients are still motivated by fear more than greed. This marks a significant shift from Q3 2016 when 82% said fear was their clients’ top motivator. Advisers also suggested a measured approach to the markets. Eighty-two percent (82%) are scaling back client return expectations as the bull market approaches its ninth year.

“Advisers play a critical role in managing client expectations and easing their concerns,” Moninger says. “The best advisers are clearly articulating established financial plans and highlighting the benefits of setting long-term investment goals.”

While adviser focus on generating income dropped, 43% still feel it has increased in importance over the past year and 74% plan to alter their approaches to generating income if interest rates rise. However, the study pointed to some income-generating solutions advisers prefer. The top selected by 56% of advisers was dividend-yielding equity funds followed by municipal bond funds (32%) and high-yield funds (32%).

“Advisers are anticipating and planning for the next set of challenges their clients might face,” Moninger adds. “In a time of uneven global growth and political uncertainty, it’s critical for advisers to respond in a thoughtful, rational way that allows investors to take advantage of undervalued opportunities that can potentially lead to long-term rewards.”

Advisers are also keeping a sharp eye on tax reform. Seventy-six percent of advisers have had a recent conversation about tax reform implications for client portfolios. Most advisers (84%) expect potential tax changes to positively affect clients, although not for some time. The majority (65%) believe substantial tax reform is one or two years away and are not currently advising clients to make significant changes.

Moreover, the study shows that socially responsible investing is playing an increasing role in adviser practices. Seventy-eight percent (78%) report responsible investing is an important theme in their practice. When asked what areas within responsible investing trigger the most client interest, advisers indicate clean energy (54%), followed by sustainability (44%) and climate change (41%). Human rights (33%), water issues (26%) and consumer protection (20%) rank lower on the list of client priorities.