RIA confidence tempered by worry about inflation

FWR Staff

19 June 2006

Independent advisor confidence up slightly last month despite oil-price woes. AdvisorBenchmarking's Advisor Confidence Index was up for the second month in a row in May, despite widespread worry about the possible effect of energy-price induced inflation putting pressure on an already delicate economy.

"It's a classic pickle for the Fed," says Bill Ramsay of Raleigh, N.C.-based Financial Symmetry. On one hand the central bank's decision makers "are rightly concerned about the possibility of energy prices being passed through on end products and services. On the other they "also realize that high energy prices could depress consumer spending."

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The ACI, which is based on Advisorbenchmarking's monthly survey of 150 independent registered investment advisors, rose to 115.98 in May, up from 111.88 in April.

The advisor-sentiment scale goes from a "very negative" 33.33 to a "very positive" 166.67; the mid point, 100, represents a neutral outlook on the stock market and the economy. In other words, the ACI is in broadly positive territory - has it has been from its inception in April 2004.

Under pressure

Three of the ACI's four components rose in May. The assessment of current economic conditions rose by 3.07%. The six-month-out view on the economy was up a mild 0.43%. The 12-month economic outlook - fairly healthy in April - fell by 2.07% in May. And the ACI's sole market-related component - the view on equity markets six months from now - slid 1.63% last month.

|image2| "We are beginning to see signs that the U.S. economy is going to be coming under increased pressure over the next several months," says George Cheatham of Columbia, Ky.-based American Financial Consultants, one of the advisors surveyed. "New job creation is anemic, higher fuel and health care costs are shrinking paychecks to the point that the consumer has resorted to longer term financing arrangements in order to free up cash."

Austin Crowe of Atlanta-based TO Richardson puts his assessment of the U.S. economy is starker terms. "We're looking for at least a slowdown in the economy if not a full-blown recession," he says.

Advisorbenchmarking is an affiliate of Rydex Investments. -FWR