Independent Advisors Split Over Road to Recovery, Says Schwab Study

Wednesday, March 4, 2009 6:30 am PST



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SAN FRANCISCO--(BUSINESS WIRE)--Independent investment advisors are divided on the long-term prospects for the U.S. economy and its impact on client portfolios, according to the latest Charles Schwab study of independent Registered Investment Advisors (RIAs). Forty-four percent expect the current recession to end in 2009, while 41 percent believe the recession will extend into 2010.

Charles Schwab is a leading provider of custodial, operational and trading support for more than 5,700 independent investment advisors. The semi-annual Independent Advisor Outlook Study (“study”) measures the views of independent RIAs on a variety of topics. More than 1,200 independent investment advisors with more than $300 billion in total assets under management participated in the study between January 20 and 30, 2009.

Advisors agree that today’s recessionary climate is challenging, with 84 percent of those surveyed saying that achieving investment goals in the current environment is difficult. Compared with portfolio values as of September 1, 2008, 55 percent of advisors say portfolios will take as long as three years to recover, and 35 percent think it will take somewhere between three to five years to recoup losses.

“Advisors don’t have a GPS to guide them, but they have the experience and savvy to see that there are still potholes on the road ahead,” says Bernie Clark, senior vice president for Charles Schwab Advisor Services. “Their long-term view, reasoned outlook and steady approach will serve their clients well in this environment.”

Optimism Mixed with Realism

Independent investment advisors understand the gravity of the country’s economic condition, and believe that the nation’s current leaders will put the U.S. on firmer footing. In a dramatic increase from prior surveys, 67 percent of advisors are hopeful that the country will become more united during the next six months (nearly tripling from 23 percent in July 2008). More than two-thirds of advisors also approve of Federal Reserve Chairman Bernanke’s leadership. Other signs of optimism include:

  • Nearly seven in 10 (68 percent) believe consumer savings will increase
  • More than half (53 percent) think the S&P will rise during the first half of 2009

That said, advisors are realistic about what will transpire during the first half of the 2009:

  • 92 percent now believe unemployment will rise, up from 79 percent in July
  • 69 percent say the housing market will continue to soften
  • 10 percent expect the Fed to raise rates
  • 21 percent believe energy prices will go down, down from 57 percent in July

Investors Adapt by Changing Advisors

In these tough times, it’s clear that investors are seeking out the trusted counsel of independent RIAs. More than 90 percent of advisors won new clients in the last six months: 45 percent were refugees from the upended full service brokerage industry, and 25 percent were former do-it-yourself investors.

The number one reason clients from full service brokerage firms give for switching to independent advisors is a loss of trust in their previous firm (69 percent). Their desire for more personal advice ranks a close second at 64 percent. Also of note is that 12 percent of independent advisors say new clients came through their doors in the last six months because of concern over their previous firm’s sub-prime mortgage exposure, a doubling from six percent in July.

“Investors are confused about what’s going on – and what’s happened to their portfolios – and with good reason,” says Clark. “Now more than ever, advisors tell us that their new clients’ portfolios are in need of an overhaul,” he asserts. The most common offense, 74 percent of advisors say, is an asset allocation mix that is inappropriate for a client’s risk tolerance level. More than half of advisors (53 percent) say new clients are typically in a large number of high-cost products; 49 percent say they’re also seeing too many proprietary products in new client portfolios.

Current clients are also confused, and advisors are making special efforts to reach out to assuage their concerns and offer clarity. Nearly eight in ten (78 percent) advisors have increased the amount of proactive contact they have with their clients; more than 70 percent are providing more education about the market.

Clients of the advisors surveyed also appear to be more prudent, particularly those who are already in retirement. In fact, 78 percent of advisors say that more of their retired clients are considering short-term expense reductions. Nearly half of advisors (49 percent) say more retirees are changing their investment strategies, and an equal number say retirees are reducing the amount of their retirement distributions.

Independent Advisors ID Top Strategies

Whether due to clients’ ages or stages in life, advisors see opportunities in fixed income in the current environment. Forty-two percent of those surveyed say that they are more likely to invest in this asset class over the next six months, an all-time high since this survey began in January 2007 and more than double the 20 percent of those who felt this way in July 2008. On the equities side, 38 percent say they plan to invest more in domestic large cap stocks -- an eight percent jump from July. Advisors also are ready to reconsider clients’ cash holdings, with 46 percent planning to maintain current levels and 34 percent saying they are ready to begin moving out of cash during the next six months.

Where and how are advisors investing? As the economy rebuilds, advisors expect health care (50 percent), consumer staples (43 percent), and energy (37 percent) to be the top performing sectors over the next six months. An overwhelming 79 percent say ETFs are their top investment vehicles for capitalizing on these opportunities. REITs and high-yield bond funds also continue to be popular among advisors, coming in as the second and third most commonly used investment vehicles.

The Independent Advisor Outlook Study, conducted for Schwab Institutional by Koski Research in January 2009, has a 2.83% margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co. Inc. Detailed findings can be found at

About Charles Schwab

The Charles Schwab Corporation (Nasdaq: SCHW) is a leading provider of financial services, with more than 300 offices and 7.4 million client brokerage accounts, 1.5 million corporate retirement plan participants, 468,000 banking accounts, and $1.1 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC,, and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. The Charles Schwab Bank (member FDIC) provides banking and mortgage services and products. More information is available at (0309-7339)


Charles Schwab
Alison Wertheim, 415-636-5812

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