Happier Days

It’s good again. Advisors are getting more clients, they report getting good returns, and they believe we are in a bull market, according to our survey of Investment Advisor readers conducted in early September.

The survey of advisor sentiment–our second this year–was conducted by e-mail the two days before and the two days after the Labor Day weekend. The first survey was last April, right around the terrible bear-market bottom, and it probed the financial pain suffered by our readers. The new survey, quite happily, paints a brighter picture of a strong market rebound, and this seemed a good time to assess how the rebound is affecting advisors.

A word about the survey itself. Despite a software glitch that deleted some submissions, the distraction caused by the holiday, and the e-mail virus plague that struck the Internet during the days we conducted our e-mail poll, we received more than 525 responses–a valid sample of what’s happening in advisor practices.

What’s the context for our survey? The Russell 3000, an index covering 98% of the total capitalization of all domestic stocks, hit an all-time high on March 23, 2000, and began a three-year descent. On March 11, 2003, it hit a low, collapsing 47% from its high and vaporizing $5.4 trillion of wealth. It’s since staged a comeback. By mid-September, a summer rally from last spring’s trough fueled a 31% gain.

Advisors are happy again. About 90% of those surveyed said their average portfolio showed a gain this year, with about two-thirds of the respondents reporting gains in their average portfolio of more than 10%. Considering that many, if not most, advisor-managed portfolios contain some fixed-income securities, and that the Russell 3000 is up about 18%, advisors are turning in respectable investment results for clients.

In the April survey, a majority of advisors reported lightening up on stocks during the previous 12 months, as the bear market had deepened. It stands to reason then that advisors would not be rebounding as much as the market because many went into the summer rally with a lighter load of equities.

The summer rally has renewed optimism, with about 90% of advisors saying the recent upswing ended the bear market. Just 10% of those surveyed said the summer burst was a “sucker’s rally.” Along those lines, about 90% of those polled said they believed the economy and stock market would strengthen in the next 12 months.

Only about 12% of those polled said they reduced allocations to stocks since the start of 2003. Almost half said they had been maintaining equity allocations, while 44% said they had increased their commitment to stocks.

Nearly half of those polled said they had reduced their allocations to fixed income. About 40% said they were holding steady on their fixed-income allocations, and 10% had increased fixed-income holdings.

Perhaps the most significant finding suggests a fundamental shift in strategy by many advisors. We asked advisors, “Which statement best describes your investment strategy?” and gave them three choices: (a) my firm used a static asset allocation strategy before the bear market and still does, (b) my firm used a tactical asset allocation strategy before the bear market and still does, or (c) my firm used a static asset allocation strategy before the bear market but now uses more of a tactical approach.

Half of those polled reported they were static asset allocators before the bear attack and had remained faithful to that approach, and almost 30% said they were tactical before and remained so. But more than 20% of the respondents said they had switched from static asset allocation to a tactical approach–trying to pick the asset classes that are in and out of favor. The bear market, then, may have changed the way many advisors manage money.

Nearly 30% of responding advisors said the greatest challenge in running their business is personnel management. Only about 15% said mastering financial planning strategies was their greatest challenge and 14% said technology was their greatest challenge. More than 40% reported that marketing their services was their top challenge.

I’ve avoided covering marketing in this space over the years because I own a company that helps advisors with marketing and have no need or desire to make this column self-serving. However, since advisors need help with marketing, I’ll do my best to report ideas you can implement.