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Advisor Optimism Outweighs Investors'

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Advisors' optimism far outstrips their clients', according to a report released Wednesday by Russell Investments. Nearly 60% of advisors reported feeling optimistic about the future of capital markets, but said just 7% of their clients agreed. Furthermore, while only 13% of advisors said they were pessimistic, 45% said their clients were pessimistic.

Phill Rogerson (left), managing director of consulting services for Russell’s Private Client Services business, noted that while the results weren't unexpected, the magnitude was a surprise. He suggested advisors' experience in the industry was a likely reason for their confidence.

"Generally, advisors take a longer term view and aren't caught up in the moment," he said. Investors, however, are stuck "fighting the last battle," and end up buying equities when they're expensive, and selling them when they're cheap.

"Advisors are disciplined enough to not be concerned about what's going to happen in 2010 or 2011, but to look at the aggregate of 2010 to 2015," he said.

Advisors and clients have different ideas about what is holding clients back, as well. Over three-quarters of advisors said their clients believe the biggest threat against them is economic uncertainty and slow growth. Advisors disagreed, and 60% say underfunding is the biggest obstacle clients have to face. Just over half of advisors said slow economic growth was the biggest obstacle their clients face, after underfunding, and the federal deficit (54%).

Market volatility ranked high among clients; 61% of advisors said their clients though this was their biggest obstacle. Another big threat facing clients may be harder to address; 43% said their clients' "cynicism" and belief that "the game is rigged against the little guy" are the biggest obstacles they face. Advisors agreed that client behavior is an obstacle; 49% said their clients' "unwillingness to accept sufficient market risk" was preventing them from meeting return objectives.

Those negative attitudes may account for the 34% of clients who have had to change retirement plans after or right before they stopped working. The majority (69%) are working longer or returning to work, and 62% downsizing their retirement dreams. Fifty-six percent of advisors say their clients are changing their investment strategy. Just 33% are increasing their savings rate.

Rogerson also noted that the media tends to do a disservice to investors by sensationalizing or focusing on the negative aspect.

As for which strategies advisors are using, dividend-paying stocks and mutual funds are most popular; 86% of advisors say they use these products to generate retirement income. Annuities are popular as well, with 70% of advisors indicating they use them. Bond laddering and other investments like ETFs and REITs are less popular at 43% and 31% respectively.

Advisors need to work hard to get investors' attention off daily market returns, and focus on the value and the goals of their portfolios, Rogerson said. He pointed to the various controls investors have at their disposal, such as saving more, working longer, noting that there really aren't that many.

"The levers they can pull are relatively limited, but that's where they need to focus. Really good advisors do that really well."

"Recovery is underway," Rogerson said. "It may not be as robust as we'd like it, but it's underway."


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