Charles Schwab IMPACT 2009: Independent Investment Advisors Outlook Warms Up

14 September 2009

Independent investment advisors say the economy is turning a corner, according to the latest results of a semi-annual study released at Charles Schwab’s IMPACT 2009 conference. The majority (72%) of independent advisors surveyed by Schwab in late summer believe the recession will end in less than 12 months, and more than one-third (36%) said the end is not only in sight, but will come before the end of this year.

The semi-annual Independent Advisor Outlook Study (“study”) measures the views of independent RIAs on a variety of topics. Nearly 1,200 independent investment advisors with more than $280 billion in total assets under management participated in the study between July 28 and August 7, 2009.

The study reveals additional signs of optimism: more than two-thirds of participating advisors (72 percent) say the S&P 500 Index will continue its upward climb in the next six months – the greatest level of optimism measured by the study in two years. And nearly eight in 10 (79%) of advisors approve of Federal Reserve Chairman Bernanke’s leadership, also the highest since July 2007.

Many advisors continue to have concerns about their own markets, however. While 59 percent say that their local economy has improved or remained static in the last six months, 39 percent say their region’s economic prospects continue to decline. Considered regionally, advisors in the Northeast are the most upbeat, with 32 percent saying their economy has improved. At the other end of the spectrum, just 18 percent of advisors in the West say they feel this way.

Other economic sentiments expressed by advisors participating in the study:

After expressing an extraordinarily high level of optimism about the unity of the nation in January – just days after President Obama’s inauguration, 67 percent of advisors surveyed said the country would become more politically united – now just eight percent say they think the country will become more united during the next six months.

Investors Seek Out Independent Investment Advisors

In these tough times, investors are continuing to seek out the trusted counsel of independent RIAs: questions about their firm’s integrity are a non-issue for 95 percent of advisors surveyed. With numbers that are largely unchanged from January, nearly nine in ten (89%) of advisors won new clients in the last six months: 45 percent of new clients left full service wirehouse advisors, while 23 percent were former do-it-yourself investors. The top explanation clients from full service wirehouse firms give advisors for switching is a loss of trust in their previous firms (68%). A desire for more personal advice again ranks a close second, at 59 percent.

“Investors continue to feel uncertain about their nest-eggs,” says Bernie Clark, senior vice president, Schwab Advisor Services. In fact, says Clark, “Forty-three percent of advisors told us that their clients needed reassurance about the markets and their investments – just a slight drop from the 49 percent who said this in January.”

Clark pointed out that while managing client expectations has been their greatest challenge over the past six months, advisors are signaling that things are changing, slowly. Fifty-nine percent of advisors surveyed say achieving client investment goals in this market will be difficult, a sharp decrease from the 84 percent who said this when surveyed in January.

Top Investment Strategies Revealed

According to the study, advisors are seeing more opportunities in equities, and are signaling moves away from cash and fixed income. Nearly one-third (31%) say they plan to invest more in US small cap equities over the next six months, on par with advisors’ plans for investing more in US large cap equities (30%). Only 25 percent plan to invest more in fixed income, down from January’s high of 42 percent, and just 8 percent plan to hold more cash in client portfolios.

Interest in international equities is on the rise as well, particularly in emerging markets. Thirty-seven percent of advisors say they plan to invest more in large cap emerging markets over the next six months – an all time high for the study and up dramatically from 14 percent who said this in January 2009. Just over one-quarter (27%) are interested in small cap equities in these regions as well, which is considerably more than the nine percent who expressed renewed interest in them in January.

ETFs remain the preferred investment vehicles for independent advisors, with 39 percent planning to invest more there during the next six months. Commodities rank second and REITs/high-yield bonds tie for third among advisors for investment vehicles of choice.

The Independent Advisor Outlook Study, conducted for Schwab Institutional by Koski Research in July and August 2009, has a 2.89% margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co.