Advisors favor alternatives as confidence falls to −7

Advisors reported a drop in confidence in June and planned to steer more client assets into alternative investments, according to the June Financial Advisor Confidence Outlook (FACO) survey of 195 advisors. The overall FACO score fell to −7 and 27% of respondents said they would recommend higher allocations to private equity, private credit and private real estate.

The score reversed a modest recovery from May, when the reading was 7. Respondents cited the conflict in Iran and disruptions in the Straits of Hormuz, concerns about fuel and commodity prices, domestic political dysfunction and uncertainty about the path of interest rates as factors behind weaker sentiment. One respondent wrote, “I think the uncertainty of the market and the war [in] Iran is causing a lot of fear.” Another wrote, “higher interest rates and uncertainty about future rate cuts.”

Alternative investments drew increased interest as advisors looked for ways to diversify portfolios beyond public stocks and bonds. Twenty-seven percent of survey participants planned to recommend raising clients’ allocations to alternatives in the coming month. Scott Bishop, partner and managing director at Presidio Wealth Partners in Houston, noted that for many high-net-worth clients diversification includes private real estate, private equity and private credit alongside public market holdings.

Private credit attracted particular attention and divided opinion. Concerns about liquidity and risk increased after large asset managers limited investor withdrawals from some private-credit funds. Respondents noted varied misconceptions about private credit: one wrote that some investors view private credit as “more risky than traditional investments,” while another wrote, “I don’t think clients understand the risk. And liquidity issues.”

Despite the drop in overall confidence, many advisors continued to favor public market exposure. Thirty-five percent of respondents directed clients to domestic equities (up from 33% in May), 32% favored foreign equities (unchanged) and 30% preferred bonds and other debt instruments (up from 25%).

Sub-scores in the FACO survey showed mixed results. Views on the general economy rose slightly from 27 in May to 28 in June. Confidence in government policy declined from 16 to 9, and views of the global economic system worsened from −38 to −51. Scores for practice performance fell from 39 to 24, client risk tolerance moved from −3 to −10, and views on asset allocation shifted from −2 to −5.

The results were collected in June from 195 financial advisors and include anonymous comments submitted with responses.