Independent Advisers Report More Optimism

Ellie Behling

September 14, 2009 — Forty-one percent of independent investment advisers reported that retired clients are reducing the amount of their retirement distributions, according to a study by Charles Schwab.

Surveyed advisers also reported that clients are considering short-term reduction of expenses (66%) and lowering fundamental expenses, such as changing their primary residence (40%).

Schwab’s semi-annual study gauging the outlook of independent advisers also found that advisers are moving away from fixed income and seeing more opportunities in equities on both the domestic and international level, especially in emerging markets. Over the next six months, nearly one-third (31%) of surveyed advisers said they plan to invest more in U.S. small-cap equities and 30% plan to invest more in U.S. large-cap equities. Slightly less (25%) plan to invest more in fixed income, down from January’s high of 42%; just 8% plan to hold more cash in client portfolios.

On the international front, more than one third (37%) of surveyed independent advisers plan to invest more in large-cap emerging markets over the next six months (up from 14% in January). Just more than one-quarter (27%) are interested in small-cap equities in these regions (up from 9%).

Independent advisers also continue to look toward exchange-traded funds, with 39% planning to invest more in the vehicles during the next six months.

Continued Business Growth

Independent advisers said they are continuing to poach clients from the wirehouses. Similar to January numbers, nearly 9 in 10 (89%) of surveyed advisers won new clients in the last six months (see “Advisers Split Over When Recession Will End”). Of those clients, 45% came from full-service wirehouse advisers and 23% were previously do-it-yourself investors, according to the Charles Schwab survey.

Most advisers (59%) said achieving clients’ goals in the current market will be “difficult”—but that’s a marked improvement from the 86% of advisers who said that in January.

Clients are still looking for more reassurance than two years ago: Among all respondents, the average percent of an adviser’s clients needing reassurance is 43%. That is down from 49% in January, but not back to the 12% level of 2007.

Economic Optimism

The Schwab study revealed that independent advisers are much more optimism about the economy. Two-thirds (72%) of participating advisers said the S&P 500 Index will continue its upward climb in the next six months, representing the most optimism measured by the study in two years.

Advisers are still hesitant about their local economies, however. While 59% said their local economy has improved or remained static in the last six months, 39% said their regions economic prospects continue to decline, according to the survey. Advisers in the Northeast are the most upbeat (32% reported an improved economy), while advisers in the West are the least optimistic (18% report improvement).

Eighty-one percent of advisers expect the unemployment numbers to rise in the next six months, a slight dip since January.

Compared to six months ago, many more advisers expect to see a rise in consumer spending (43% compared to 14% in January). Even more advisers (69%) expect consumer savings to increase (relatively unchanged from January).

The Independent Advisor Outlook Study was conducted for Schwab Institutional by Koski Research in July and August 2009 among 1,200 independent investment advisers. More findings are available at www.aboutschwab.com/advisors.