Schwab Impact Conference
Managing client expectations about investment performance remains independent advisers' biggest challenge, but they are regaining confidence in the economy and directing more investments to equities and away from cash and bonds, according to The Charles Schwab Corp.'s semiannual Independent Advisor Outlook Study.
According to a survey that was part of the study of 1,197 Schwab Advisor Services clients between July 28 and Aug. 7, 72% of the respondents said that they expect the recession to end in less than a year, and half said that they think it will be over by the end of 2009.
In a further burst of optimism, 72% said that they expect the S&P 500 to continue rising over the next six months — the highest level measured by the study in two years. That translates into a growing number of advisers putting their clients into equities, including international markets.
“The optimism is clearly there, though I'm not sure how much longer we'll have to continue qualifying that by saying they are ‘cautiously optimistic,'” Bernie Clark, a senior vice president and head of sales for the registered investment adviser unit, said in an interview at Schwab's annual Impact conference in San Diego.
A huge majority of advisers (89%) surveyed said that they had won new clients in the previous six months, with 45% moving to RIAs from full-service wirehouses and 23% coming from do-it-yourself investors who previously used discount brokers.
Nevertheless, 57% of survey respondents said that they continue to worry about managing client expectations about investment performance, and 47% said that they are adjusting to decreased revenue at their firms, making the latter the second-most-frequently cited “challenge” in this environment. Although managing client expectations remains the biggest challenge cited by the survey respondents, the number dropped sharply from the 84% of respondents who spoke about that difficulty in Schwab's last survey in January.
When it comes to investments, exchange-traded funds remained the preferred choice of advisers in the survey, with 39% of respondents saying that they plan to use the vehicles by yearend. In a sign that the advisers are more confident about taking on risk, commodities ranked as the second-most-cited investment choice for the rest of the year, followed by real estate investment trusts and high-yield bonds (which tied as the third investment choice).
In terms of asset classes, advisers are gravitating away from U.S. stocks.
Some 37% of those surveyed said that they will invest in large-cap emerging markets by yearend, the highest percentage ever recorded in the category by Schwab and up from just 14% of respondents in January. And 27% of respondents said that they are looking at small-cap emerging-markets equities.
Those responses jibe with sentiments cited at the Schwab conference yesterday by two lions of the managed money community.
Mohamed El-Erian, chief executive of Pacific Investment Management Co., and Laurence D. Fink, chairman and chief executive of BlackRock Inc. suggested that investors reduce their dependence on U.S.-dollar denominated assets. But in what might be perceived as a check on adviser optimism, they warned that leverage in the financial system continues to remain too high and risk remains hard to quantify. (Read more of their remarks
here
Although 79% of those surveyed said that they approve of Federal Reserve Chairman Ben Bernanke's leadership and just 35% expect housing prices to decline, another survey released Monday expressed more pessimism from the public. According to a new Associated Press-GfK poll, 70% of Americans lack confidence that the federal government has taken safeguards to prevent another financial industry meltdown, and 80% worry about their ability to pay their bills in light of the continuing poor economy.
About 1,200 financial advisers are attending the Schwab Impact conference, including 45 brokers who now work at wirehouses and are considering moving to independence, Mr. Clark said.
Schwab said that the survey, conducted by Koski Research, has a 2.89% margin of error.
