Of all the problems the United States faces, wealth managers rank one above almost every other: the national debt.
According to a new survey by Financial Planning’s parent company, Arizent, nearly half — 48% — of financial advisors said the nation’s debts were the “most urgent” policy area “for the next administration and Congress to address.”
In terms of importance to these professionals, that puts the debt ahead of immigration (35%), industry regulation (39%), tax reform (43%) and all the wars and tensions in Europe, Asia and the Middle East (22% ), among many other issues.
Only one topic ranked higher — though barely — in terms of advisors’ concerns: a catch-all answer labeled “the economy,” which claimed a full 50% of respondents. But in terms of specific issues, the national debt reigned supreme.
What is it about this issue that makes it so worrying for wealth managers? One reason may be the debt’s sheer size: According to the US Treasury Departmentthe federal government currently owes $34.6 trillion — and that number rises every second.
Some financial planners say it’s hard for them to look at that figure without a sense of horror.
“Financial advisors constantly look at the economy, and if one of our clients had the balance of income and expenses that the US government has, they would be broke,” said Rob Schultz, a senior partner at NWF Advisory in Encino, California.
But that’s not the only reason advisors are concerned. As a profession, wealth management is particularly affected by the state of the economy, which some worry an untenable national debt could someday disrupt.
“The national debt affects wealth management in that the US is the baseline for the global financial system,” said Noah Damsky, a principal at Marina Wealth Advisors in Los Angeles. “The global financial system is built on the United States’ financial stability, so a high debt-to-GDP ratio could, one day, stress the markets and the wealth management business.”
Not only that, but some American safety net programs — especially those for retirees — depend directly on the federal government’s ability to keep paying its bills. Social Security, for example, is already on financially shaky ground; the federal trust fund for Old-Age and Survivors Insurance is currently expected to go insolvent after 2033.
Most experts expect Congress to eventually take action to shore up the program, even if it’s at the last minute. But if for some reason the national debt — or an effort to pay down that debt — made this impossible, millions of retirees’ incomes would be at risk.
“Advisors realize … that the ability to pay obligations, especially Social Security, can negatively impact our clients’ financial lives,” Schultz said.
Of course, not all wealth managers are concerned about this. David Foster, founder of Gateway Wealth Management in St. Louis, Missouri, pointed out that there are key differences between a country’s debt and an individual’s.
“The average person views the national debt as analogous to household debt, and everyone understands that taking on too much debt can ruin a household’s finances,” Foster said. “Of course, this isn’t how sovereign government debt works, but political messaging doesn’t tend to strive to communicate nuance.”
As a debt holder, a nation has many advantages over a person: It has a much longer planning horizon, often pays lower interest rates on its loans, can raise taxes to pay down its debts and, in a pinch, can simply print more money .
READ MORE: How a debt ceiling crisis could hit retirees’ benefits and portfolios
Of course, that last solution carries its own costs.
“Advisors realize that inflation is a damaging force and the more money that is printed, the more likely inflation is to be present,” Schultz said.
According to Arizent’s research, wealth managers worried about the national debt at much higher rates than other professionals. While 48% of advisors considered the debt America’s “most urgent” problem, only 35% of municipal workers, 26% of insurance brokers and 21% of tech vendors said the same.
And yet, according to Damsky, it’s not just financial advisors who should be concerned.
“If anything, it’s equally pressing for Americans and the world, as the US dollar is the global reserve currency,” he said.
