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Portfolio > Portfolio Construction

In-depth survey gauges independent advisor trends and forecasts

By Staff Writer

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Charles Schwab’s semi-annual Independent Advisor Outlook Study reveals both an optimistic and realistic outlook from more than 5,700 independent investment advisors. Here’s what they’re saying:

Portfolio overhaul

“Investors are confused about what’s going on – and what’s happened to their portfolios – and with good reason,” says Bernie Clark, senior vice president for Charles Schwab Advisor Services. “Now more than ever, advisors tell us that their new clients’ portfolios are in need of an overhaul.”

Where will that overhaul begin? Seventy-four percent of advisors say what must first be changed is an asset allocation mix that is inappropriate for a client’s risk level. Fifty-three percent say new clients are generally in a large number of high-cost products, and 49 percent say they are seeing too many proprietary products in new client portfolios.

How long will the downturn last?

While independent registered investment advisors remain divided on how long the recession will last, a majority agrees it will take at least three years for portfolios to recover. According to the study, 44 percent of advisors say they expect the recession to end in 2009. Others are not as optimistic; 41 percent believe the recession will extend beyond 2010.

“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 Clark. “Their long-term view, reasoned outlook and steady approach will serve their clients well in this environment.”

Reassurance is everywhere

Almost across the board, advisors are taking steps to actively communicate with their clients. More than 70 percent say they’ve increased their proactive contact and have been providing more education about the market to their clients.

Top strategies?

Whether due to clients’ ages or stages in life, advisors see opportunities in fixed income in the current environment, according to the survey. 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.

Optimistic outlook:

Unlike many investors’ waning confidence in current leadership, almost 70 percent of advisors are hopeful the country will become more united during the next six months (an dramatic increase from 23 percent last July). Furthermore, almost 75 percent 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

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