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Advisors Bullish on Business, Bearish on Markets and Economy: Schwab Survey

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As the 2012 presidential election nears, advisors are like Charles Dickens describing late 18th century France and England in A Tale of Two Cities. Considering their own practices, these seem to be the best of times, but as for the state of the economy and markets, and their feelings about Washington, these are uncertain, dangerous times for advisors. They fear rising inflation, believe it will be more difficult to achieve their clients’ goals and that the “Millennial” generation will have a harder time achieving the American Dream.

In an interview on Tuesday reviewing the findings of Schwab Advisor Services’ 12th semi-annual Independent Advisor Outlook Study, Bernie Clark, executive VP and head of SAS, said those feelings were understandable. “The stakes are a little higher this time,” he said, referring to this year’s election, that among advisors there’s “more consternation” that can be traced to the persistent troubles in Europe, to “zero percent interest rates” and to “the least productive government in many years,” as evidenced by gridlock in Washington.

Bernie Clark of SchwabBut under the “best of times” scenario, Clark (right) says advisors are “hiring because their businesses are growing,” and they’re optimistic about future growth because their “highly engaged” clients” are a key part of their “sales force.” Because of RIAs’ focus on engaging with clients throughout the financial crisis, those clients are now “telling the good story” of how their advisors have helped them “stay disciplined” to their families, colleagues and acquaintances. Advisors are retaining clients and their assets at a very high rate, Clark said.

The Study surveyed 839 employees of independent RIA firms that custody with Schwab Advisor Services from Aug. 21-31, 2012. Some of the key findings:

  • 55% of advisors predict the performance of the S&P 500 will increase in the next six months
  • 55% think the U.S. economy has worsened in the past four years, and 50% believe the capital markets have gotten worse
  • 34% say they are bullish on the market for the next six months, down from 45% in January 2012, when the previous Study was published
  • 33% think unemployment will increase over the next six months, up sharply from 18% in January 2012
  • 50% believe inflation will increase in the next six months, compared to 44% in January 2012
  • 23% think it “likely” that a double-dip recession will occur in the next six months; compared to 14% in January
  • 47% think consumer spending will increase, down from 57% in January

As to whether they will be able to achieve clients’ goals in the current market environment, 63% said it would be “difficult,” compared to 59% in January. When asked if they thought “young people today—the Millennials—will be able to achieve the same (or a higher) economic status as their parents?” 36% responded “Most of them will not.” 

For the first time, the Study asked respondents about “The American Dream,” and 81% said it was “still alive” but different than it was a generation ago. When asked to list those issues that “have had or will have the most negative impact on Americans’ ability to achieve the American dream,” the most frequently cited obstacles were

  • Federal debt: 65%
  • high unemployment: 61%
  • cost of a college education: 60%
  • health care costs: 59%

Interestingly, “loss of home equity” was only the 10th-most-cited issue, at 27% of respondents, which Clark suggested reflected a sense that housing is now “firming,” and that “if you can believe” the last few months of unemployment numbers,” they may signal a “return to normalcy.”

On their own businesses over the next four years, however, the advisors in the survey were quite bullish: 83% said they felt that way about the assets they had under management and 80% on firm profitability. More than one-third (37%) reported that they had hired new staff, especially in the areas of investment management (48%), client service (47%), operations support (47%) and business development (32%). However, business development capabilities were most often cited as the hardest skill to find when looking for new professional employees of their firms.