Independent Investment Advisors Sharply Divided on Market Outlook, According to Latest Schwab Survey

Likelihood of “double-dip” recession unchanged from 2010; advisors gravitate to large cap stocks and more conservative investment vehicles

Wednesday, September 14, 2011 5:00 am PDT



Public Company Information:

"As a category, independent investment advisors continue to be among the fastest growing financial services segment due to the personalized service and trustworthy guidance they give their clients"

SAN FRANCISCO--(BUSINESS WIRE)--Independent registered investment advisors (RIA) are sharply divided in their investment outlook for the next six months, according to Charles Schwab’s latest survey of over 900 RIAs representing $207 billion in assets under management. When asked to classify their six-month stock market outlook, 37 percent of advisors classified themselves as “bulls”, down from 56 percent in January, while 22 percent saw themselves as “bears,” up from 10 percent in the previous study in January. However, 41 percent of advisors surveyed said they were “neither” bull nor bear, compared to 35 percent in January.

The number of advisors who think a double-dip recession is likely (28%) remains unchanged from one year ago. In fact, over half of advisors (52%) believe a double-dip recession is unlikely, down from 59% of advisors who responded in July 2010, the last time this question was asked.

Nearly three-fifths of advisors surveyed (58%) expect the S&P 500 to rise in the next six months, down from the 77 percent reported in January 2011, but more in line with advisors’ outlook of July 2010 when 63 percent expected the S&P 500 to rise.

“Clients turn to their advisors as trusted guides in difficult markets,” said Bernie Clark, executive vice president and head of Schwab Advisor Services. “More than 90 percent of the advisors surveyed reported winning new assets during the past six months, and we know that RIAs who custody with Schwab report a client retention rate of 97 percent.1 Their reasoned perspective and steady approach will provide clients with thoughtful choices as we move ahead.”

Independent advisors also have a mixed outlook about a number of economic and market indicators. Fifty-eight percent of advisors think inflation will increase in the next six months, compared to 64 percent in January. Forty-seven percent surveyed believe that consumer savings will increase, compared to 43 percent in the previous study in January. Only 36 percent believe that consumer spending will increase, compared to 68 percent in January, and 39 percent expect that unemployment will increase, up from 17 percent in the last study. Looking at energy prices, 23 percent of advisors surveyed expect them to soften, compared to only 8 percent in January.

In a first for this study, advisors were asked to identify factors that they believe will improve and pose risks to market performance over the next six months. The leading factors that advisors expect to improve performance are:

  • higher corporate earnings expectations (52% of advisors);
  • a decrease in the unemployment rate (43%);
  • an increase in corporate spending (37%); and
  • stability in the European debt crisis and increase in consumer spending (both 36%).

In contrast, advisors said that these factors would pose risks to market performance over the next six months:

  • an increase in the unemployment rate (57%);
  • continued European debt crisis (47%);
  • higher energy and other commodity prices (36%); and
  • a decrease in consumer spending (35%).

“As a category, independent investment advisors continue to be among the fastest growing financial services segment due to the personalized service and trustworthy guidance they give their clients,” said Mr. Clark.

Advisors’ Focus Split Between Large Cap Investments and Increases in Fixed Income and Cash

The increasingly mixed opinion about investing over the next six months is also reflected in advisors’ attitudes towards asset classes. Overall, RIAs still have a bias to equity investing with 32 percent likely to invest more in domestic large cap compared to 39 percent in January 2011. Looking abroad, 21 percent of advisors are planning to invest more of their clients’ portfolios in international large cap in emerging markets, while 17 percent plan to increase investment in international large cap stocks in developed markets. Reflecting a more conservative outlook, 15 percent of advisors plan to increase their investment in cash and 12 percent expect to invest more in fixed income.

As in January, 43 percent of advisors see energy as the best performer of the next six months followed by information technology (42%). Advisors also had a marked enthusiasm for other top-performing sectors, with 33 percent choosing health care (a 10 percentage point increase over January), 28 percent choosing consumer staples, and 22 percent picking utilities, both of which showed 13 percentage point increases compared to their position in the January survey.

Exchange traded funds (ETFs) continue to be the investment vehicle of choice for independent advisors, with 26 percent of those surveyed saying that they will likely invest more over the next six months, the most of any instrument. Alternative investments ranked second among advisors as the investment vehicle where advisors expect to invest more (20%), followed by actively managed mutual funds (15%). Ten percent of advisors said they expected to invest more in gold, the only investment vehicle that showed a significant increase.

Municipal bonds and actively managed mutual funds also rank high among the majority of independent advisors surveyed, with 55 percent of advisors indicating they will keep at current levels for their client portfolios.

Clients Holding Steady

According to the advisors surveyed, the percentage of clients needing reassurance (23%) is unchanged from the survey earlier in the year, and lower than the number of clients needing reassurance in 2010 and 2009. Looking at the next six months, 59 percent of advisors reported that they believed it would be difficult to reach their clients’ investment goals in the current market environment. While this is an increase from the 39 percent reported earlier this year, it is about the same as the levels reported in surveys in January 2010 and July 2009, and down significantly from the 84 percent reported in January of 2009.

Advisors report a more conservative financial posture among their clients. Forty-one percent are reducing expenses, compared to 34 percent in January, while 20 percent are drawing down on existing savings and assets, compared to 13 percent in January. In the most conservative finding, advisors say that only 8 percent of their clients are spending money on discretionary items, compared to 22 percent in January.

About half (46%) of clients are maintaining their existing portfolios without making contributions, nor taking gains or withdrawals. However, nearly one-fifth (19%) are adding assets to their portfolios, and another 17 percent are drawing down on their portfolio’s existing principal.

Exploring financial risk and age, advisors reported that 54 percent of their clients under 50 are more financially aggressive than clients over 50, while 23 percent of those under 50 have a similar profile to clients over 50, and only 16 percent are more conservative. In their retirement planning, most advisors are helping clients with a retirement income plan (77%) or an overall financial plan (72%).

Advisors reported that new assets coming from former DIY investors grew to 25 percent of total new assets compared to 22 percent reported in January. Clients who left a full-service brokerage firm reported that they did so for more personal advice (66%) and having lost trust in their previous firm (57%).

Industry Outlook

Advisors anticipate continued changes in the RIA industry over the next five years, including:

  • More companies developing products and services for RIAs as the industry grows (88%);
  • Greater use of outsourcing so that RIAs can focus on what they do best (75%);
  • More consolidation among RIAs (73%);
  • Clients seeking more transparency into investment decisions in their portfolios (67%).

Advisors report that the two biggest pressures on their firms’ profitability will be the costs to meet changing regulatory requirements (33%), and the costs for finding and retaining quality employees (19%).

Charles Schwab is a leading provider of custodial, operational and trading support for nearly 7,000 independent RIAs.

Methodology for 2011 RIA Benchmarking Study:

Responses were collected during February and March of 2011 and is provided for general informational purposes only. All data is self-reported by study participants and is not verified or validated. Each participating advisory firm submitted only one set of responses.

About the Charles Schwab Independent Advisor Outlook Study

The Independent Advisor Outlook Study, conducted for Schwab Advisor Services by Koski Research, has a 3.31% margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co. Inc. Detailed findings can be found at All data is self-reported by study participants and is not verified or validated. Advisors participated in the study between July 26 and August 5, 2011.

About Charles Schwab

The Charles Schwab Corporation (NYSE:SCHW) is a leading provider of financial services, with more than 300 offices and 8.2 million client brokerage accounts, 1.44 million corporate retirement plan participants, 754,000 banking accounts, and $1.65 trillion in client assets as of July 31, 2011. 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. Independent investment advisors are not owned, affiliated with or supervised by Schwab. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and mortgage services and products. More information is available at and (0911-5826)

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1 Charles Schwab 2011 RIA Benchmarking Study


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