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As Clients Focus on Portfolios, Advisors Make Minor Adjustments

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Russell Investments’ latest quarterly survey of U.S. financial advisors found  that many advisors are telling their clients to expect continued market volatility throughout 2012. Despite these market concerns, though, few advisors are making major shifts in portfolios. Many, however, are turning to mutual-fund groups and other organizations for research and other tools to help them gather information and share it more frequently with clients.

When asked what they plan to tell clients in preparation for a new year, 40 percent of advisors said they are focused on expectations for continued volatility, followed by slow economic growth (15 percent of comments). In the latest study, 63 percent of advisors surveyed say that market volatility has been a primary topic of client-initiated conversations over the past three months.

Russell conducts its Financial Professional Outlook survey quarterly and asks advisors about their perspectives and clients’ sentiments on the capital markets; the most recent results include the views of more than 310 financial advisors with about 130 different firms.

Overall, 66 percent of advisors report being optimistic about the capital markets, down from 72 percent in the September 2011 research findings. Just  9 percent of advisors feel that clients are optimistic about the capital markets, which reflects a continued decrease over the course of 2011. 

“Advisors know that volatility and the continued uncertainty surrounding issues around the globe are battering investors’ views on the markets. Communication is key for allaying clients’ fears, but it also presents some challenges — most notably, advisors must decide carefully how to manage their time effectively,” said Ryan Parker, managing director, national accounts and business development for Russell’s U.S. advisor-sold business, in a press release. “Interestingly, while advisors are working to help ease investor concerns, their own sentiments remain quite positive — so much so that they are turning their focus to business growth and expansion in the coming year.”

The latest survey also finds that 44 percent of advisors believe portfolio performance was the main topic of conversation initiated by clients in the past three months — a notable increase from earlier surveys.

“It can be easy for investors to get caught up in the fluctuations of their portfolios, but advisors are in a position to help their clients determine the best course of action and think through the implications of each decision,” Parker explained.

Despite the increased focus on performance amongst investors, most advisors surveyed are making only minor changes, if any, to clients’ portfolios. Overall, 61 percent of advisors say that where it makes sense they are making some small, tactical changes to portfolios for those clients with relatively short investment time horizons.

Slightly under half, or 48 percent, say they are doing the same for those clients with relatively long investment time horizons. For these investors with longer horizons, 43 percent of advisors say they are not making any changes at all and instead urging clients to stay the course.

To help their clients understand the implications of ongoing market volatility, the majority of advisors surveyed indicate that they rely on tools provided by their broker-dealer home office (23 percent), mutual fund companies (20 percent) or other external sources (17 percent).

“We find that the most successful advisors are those who spend the majority of their time engaging clients directly and the more time they spend on back-end research, the less time they have for interaction,” explained Parker. “Advisors aiming to grow their businesses might benefit from seeking external resources to help with this research so that they can focus on guiding their clients to develop and maintain a plan to most effectively pursue their financial goals.” •