As the Election Nears, Independent Advisors Are Bullish About Their Business, but Bearish About the

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As the Election Nears, Independent Advisors Are Bullish About Their Business, but Bearish About the Markets and Economy

Majority of Advisors Believe the American Dream is Alive But That Millennials Will Have a Harder Time Attaining Same Economic Status as Their Parents

SAN FRANCISCO--(BUSINESS WIRE)-- With only a month to go until the Presidential election, the outlook and mood of independent registered investment advisors (RIAs) is a study of big-picture optimism with a strong shot of short-term pessimism mixed in, according tothe 12th semi-annual Independent Advisor Outlook Study released today by Charles Schwab Advisor Services. The study collected opinions of more than 830 RIAs representing $183 billion in assets under management and found that independent advisors are very bullish about their own businesses, and, notably, many are hiring. At the same time however, they see a range of challenges facing all of their clients, particularly in the near- to mid-term and, year-over-year, their outlook for the economy and markets overall are trending negative.


For the first time, the study also asked advisors for their perspectives on the American Dream, recognizing that advisors have a unique vantage point across the table from the individual investor and simultaneously being business-owners. The result: advisors believe the American Dream is very much alive, though they say it will be harder for Millennials to achieve the same economic status as their parents.

"Investors are faced with a complicated and uncertain economic and investment environment. It is a veritable mixed bag of risk and opportunity in which only one thing is very clear - the critical need for trusted advice," said Bernie Clark, executive vice president and head of Schwab Advisor Services. "It is by serving clients well in this environment that independent advisors are building lasting value in their client relationships and ultimately in their businesses."

Business Growth and Job Creation

Advisors are optimistic about their own businesses over the next four years: eight in ten are bullish regarding their asset under management and firm profitability. What's more, more than one-third (37%) of advisors said they have hired new staff, especially in the areas of investment management (48%), client service (47%), operations support (47%) and business development (32%).

The new jobs come on the heels of four years of growth for most advisors: 75 percent report their assets under management have grown over the past four years and more than half (55%) report improved profitability in their firms. Schwab's 2012 RIA Benchmarking Study, released in July, also found a growth trend across advisor firms. In that study, RIAs reported record levels of assets under management and revenues in 2011.

Among the business and industry issues that can potentially impact an advisor's business, regulatory changes (49%), changing client demographics (27%), succession planning (25%) and the costs of running an advisor firm (24%) rank highest in terms of those advisors are following most closely.

Beyond the doors of their own businesses, advisors are also optimistic about the American Dream. The majority (81%) believe the American Dream is still alive, but say it is different than it was a generation ago. Four in ten advisors are bullish about the American Dream over the next four years, but at the same time, they are cognizant of potentially serious challenges. Close to two-thirds (63%) of advisors say it will be difficult to achieve clients' goals going forward, and they point to headwinds such as Federal debt (65%), high unemployment (61%), the cost of college education (60%) and health care costs (59%) as having the most negative impact on the ability to achieve the American Dream.

"Advisors have a prism of reference that includes both the individual client's personal and financial picture, and the advisor's own experience as a business owner in this challenging economic environment," said Clark. "This drives their nuanced understanding of both the opportunities and the challenges facing clients, and helps set their advice apart."

Investment Outlook Trending Negative

Advisor optimism regarding the markets is down 12 percentage points since the beginning of the year and is in line with levels seen in the lead up to the 2008 election. Just 55 percent of advisors predict the performance of the S&P 500 will increase in the next six months, despite the fact that the S&P is in fact approaching levels not seen since 2007.

More than half of the advisors surveyed think the U.S. economy and the state of the capital markets has worsened in the past four years, and the rising economic optimism reflected in the Independent Advisor Outlook Study released in early Spring has not been sustained. Of note:

  • 34 percent of advisors are bullish on the market now, down from 45 percent in January
  • advisors who think unemployment will increase has almost doubled - 33 percent versus 18 percent
  • more advisors think inflation will increase - 50 percent versus 44 percent
  • more advisors are concerned about a double-dip recession - 23 percent versus 14 percent

Uncertainty seems to be prevailing. Looking ahead to the next four years, one in four (23%) advisors feels unsure about the state of the US economy, more than one in three (37%) is bearish about the stability of the capital markets and more than two thirds (68%) are bearish about political gridlock in Washington.

In terms of the impact on their investment choices, advisors are pulling back from US large and small cap equities and increasing allocations to cash and real assets. Thirty-two percent of advisors said they are likely to invest more in US large cap, a drop of nine percentage points from earlier this year. A similar drop was seen for US small cap (from 23% to 18%). At the same time, advisors indicated they are likely to invest more in cash the next six months (13% now versus 8% earlier), and there was also a jump in real estate (from 14% to 18%). On the international equities front, Canada was seen as the most attractive international equity market by close to one third of advisors (30%), followed by Australia (23%) and Germany (19%).

ETFs are still the investment vehicle that most advisors are likely to invest more in the next six months - advisors register almost double or more the level of interest in ETFs as compared with all other investment vehicles.

The Election

The upcoming election is affecting eight in ten advisors and their clients. Among these advisors: one in three indicates that it is difficult to get clients to focus on the long-term; close to a third (30%) say clients are keeping money on the sidelines until they know who wins the election; and, while 59 percent say the election is a major topic of conversation in many client meetings, 40 percent avoid getting into partisan political discussions.

Regardless of who is elected, advisors feel the top priorities of the newly elected President should include reducing the deficit (61%), increasing employment (53%) and reforming the tax code (52%).

Additional Insights

The surveys also yielded insights on a number of other fronts related to the perspectives of independent investment advisors, including:

  • Sector outlooks
  • Regulatory environment
  • End-client targets/specialties
  • Intergenerational wealth transfer

These, and other detailed findings can be accessed in the full report available at www.aboutschwab.com/press/research/advisor_research

About the Independent Advisor Outlook Study

The Independent Advisor Outlook Study, conducted for Schwab Advisor Services by Koski Research, has a 3.3% margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co. Inc. Detailed findings can be found at www.aboutschwab.com/press/research/advisor_research. All data are self-reported by study participants and are not verified or validated. Advisors participated in the study between August 21 and August 31, 2012.

About the Schwab 2012 RIA Benchmarking Study

The 2012 RIA Benchmarking Study from Charles Schwab, fielded February and March, 2012, contains self-reported data from 1,025 firms that is not verified or validated. All information contained in the Study report is provided for general informational purposes only and is not a recommendation of any business enterprise or investment advisory practice management technique, strategy or practice reported on or described.

About Charles Schwab

The Charles Schwab Corporation (NYS: SCHW) is a leading provider of financial services, with more than 300 offices and 8.7 million active brokerage accounts, 1.5 million corporate retirement plan participants, 838,000 banking accounts, and $1.86 trillion in client assets as of August 31, 2012. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Advisor Services division. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides trust and custody services, banking and mortgage services and products. More information is available at www.schwab.com and www.aboutschwab.com. Investment products offered by Charles Schwab & Co., Inc. are not insured by the FDIC, are not deposits or obligations of Charles Schwab Bank, and are subject to investment risk, including the possible loss of principal invested. (1012-6541)

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