Schwab Advisor Services Outlook Study. HNW Concerns and Confidence

April 26, 2012

High net worth investors are not as bullish about the markets and the economy as independent advisors, but nonetheless have confidence in their advisors' ability to meet their investment goals in the current environment, according to two new companion surveys released today by Charles Schwab Advisor Services:

  1. The 11th semi-annual Independent Advisor Outlook Study, surveyed almost 900 RIAs representing $204 billion in assets under management, and found that 45 percent of independent advisors are bullish about the market in the six months; and
  2. first-time survey of 504 high net worth (HNW) investors found that only 29 percent are bullish about the market

·         Advisors optimism is on the rise again and advisors are more bullish than HNW investors, but their bullishness has not yet returned from levels seen a year ago.

·         HNW investors want more advice and express confidence in their advisors despite the fact that they (investors) are anxious about the broader investing environment.

·         Women are key decision-makers in six of ten client relationships.

·         Independent advisors plan to invest more in equities the next six months.

·         Investment vehicles advisors are likely to invest more in the next six months: ETFs, real estate.

·         Sector outlook: technology continues to dominate, financials on the rise, energy is down.

Getting the Job Done

Although HNW investors are confident in their advisors' ability to meet their investing goals in the current market - only one-third (32%) believe it will be difficult for advisors to do so, and 25% feel it will be easy. Where investors do perceive that there are barriers to achieving primary investment goals, they point to the broader investing environment - not to the advisor specifically. The largest perceived barrier is a low return on investments in this market (57%), followed by market losses (37%). Conversely, almost three out of five (59%) independent advisors say they feel it will be difficult to meet their clients' investment goals.

Women Clients

For the first time, the Independent Advisor Outlook Study asked RIAs about the role of women in client relationships. According to surveyed advisors, women are part of decision-making around finances nearly 60 percent of the time, either as the primary or sole decision-maker (21%) or as part of a couple making decisions jointly (38%).

With regard to meeting with individual members of a couple separately, 79 percent of advisors feel it is not important at all, 13 percent consider it somewhat important and 8 percent see it as extremely important.

More than half of advisors do not think it is important for their firm's advisors to match the demographic profile of their clients, but more than one-third consider it somewhat important (31%) or extremely important (4%). Almost half of all advisors report that there are no female advisors working at their firms.

Outlooks - markets, economy, investment choices

Close to one-third (31%) of HNW investors think unemployment will increase, versus only 18 percent of advisors; 27 percent of HNW investors believe there will be another or a "double dip" recession in comparison to only 14 percent of advisors; and 60 percent of HNW investors see inflation increasing versus only 44 percent of advisors. In addition, advisors are twice as likely as HNW investors to believe energy prices will go down (16 percent versus 8 percent). The two groups are in sync on expectations for an increase in consumer spending (57% each) and that consumer savings will increase (33 percent for advisors and 30 percent for HNW investors).

While 45 percent of independent advisors are currently bullish on the market, up from 37 percent in the same study six months ago, they have not yet regained the 56 percent bullish level seen a year ago. More than two-thirds (67%) of advisors believe the S&P 500 will increase, up from 58 percent in the previous study but still below the 77 percent high reached a year ago.

Independent advisors plan to invest more in equities the next six months. Forty-one percent of advisors plan to invest more in domestic large cap, versus 32 percent six months ago, representing an all-time high for the Independent Advisor Outlook Study. Interest in domestic small cap is also up significantly, almost doubling over the past six months from 12 percent to 23 percent in the current study.

When asked about the investment vehicles they plan to invest in more in the next six months, independent advisors' interest in ETFs has increased (34% compared to 26% six months ago), while interest in foreign currency dropped to 4% from 8%.

Independent advisors continue to see information technology (48%) and energy (37%) as leading market sectors over the next six months, although energy saw a drop of six percentage points from six months ago. Financials saw the most significant uptick in expectations for performance, with 27 percent of advisors indicating they expect this sector to perform best in the next six months versus 17 percent six months ago.

Demand for advice continues to grow

Over one-third (37%) of HNW investors say their desire for investment advice during the past four years has increased. When asked what words first come to mind about working with a financial advisor, investors stated knowledge (71%), advice (59%), investment performance (49%), trust (48%) and service (47%). High net worth investors say they are worried about headline-grabbing risks at home and abroad, such as Federal government deficits (58%), political gridlock (57%), the economic crisis in Europe (54%) and uncertainty about taxes and inflation (41% and 37% respectively).

RIAs concur that clients are seeking support and guidance around these topics. Nine in ten independent advisors say they have discussed the economic crisis in Europe with their clients, and eight in ten have discussed Federal government deficits. Moreover, clients' needs for reassurance have increased overall. Advisors indicated that in the past six months, over a quarter of their clients (27%) needed reassurance that they would meet their investment goals, which was up slightly (four percentage points) from six months ago when this study was last conducted and also year-over-year. Advisors also note that evidence of a market recovery (35%) and an end to political gridlock (30%) would boost investor confidence.

Almost all advisors (93%) reported gaining new clients over the past year. The biggest source of these new clients has been investors leaving full-service brokerage firms (39%). Other sources for new clients were DIY investors at 20 percent, banks at 10 percent and IBDs at 13 percent.



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