Indie RIAs say they're taking clients from brokers

FWR Staff

19 August 2008

And they're taking a less jaundiced view of U.S. economy and stock market. A clear majority of independent investment advisors say they've won new business from full-service brokerage in the last six months either because these clients are looking for more personalized service or because these clients have lost faith in their previous firms.

That's one of the principal findings from a survey of more than 1,000 independent RIAs, conducted last month by Koski Research for Schwab Institutional.

Almost as many of the advisors surveyed -- 84% -- say they've brought in new clients this year who had previously managed their own investments.

Mild improvement

These business wins may be contributing to a mild up-tick in optimism among RIAs, who are more apt think the stock market had hit bottom by last month than they were when polled for Schwab Institutional's last Independent Advisor Outlook Study in January 2008.

Nearly six in ten say they expect the S&P 500 to rise by the end of the year compared to just 46% who said as much in January. And 57% say energy prices are likely to decrease in the next six months, up markedly from 42% in January.

Additionally, though 71% of the advisors surveyed last month see the housing market continuing to soften, that's a clear improvement over the 81% who saw continued weakness in the housing space at the start of the year.

"No one thinks today's market conditions are easy," says Schwab Institutional senior v.p. Bernie Clark. "But advisors are known for their long-term perspective: they see a light at the end of this tunnel and are leading their clients toward it."

Strategies

Though many advisors agree that there's at least a wavering flame ahead, they're divided in their investment strategies. Nearly a quarter of them plan to invest more in cash, while an equal number plan to invest less. Similarly, 22% of advisors plan to invest more in U.S. small-cap equities during the next six months while 19% intend to invest less.

Only 21% advisors plan to invest more in international large-cap equities in developed markets over the next six months, down from a high of 31% in January 2007. Just 20% plan to invest more in fixed income over the next six months, down from a high of 27% this past January.

Advisors identify the top three vehicles for the next six months as ETFs, REITs, and mutual funds that employ hedging strategies.

One in four advisors says that high fuel prices have prompted at least some of their clients to buy a more fuel-efficient vehicle. About the same portion of the survey pool says that some of their clients have put off trying to sell a home because of market conditions.

Ballot box

Finally, it seems that independent advisors are looking forward to getting the U.S. presidential election over with. Last month 23% said they expected the domestic political environment to become more united in the next six months -- up from 14% in January and 7% last summer. The Democrats among are more optimistic about our political climate than Republicans .

And, although less than half of the advisors surveyed call themselves Republican, a a clear majority believe the election of Republican John McCain would be better for client portfolios than the election of Democrat Barack Obama.

The first two things advisors think the new U.S. president should tackle in his first 100 days in office are, in order, our involvement in Iraq and stimulating the economy.

Schwab Institutional, a provider of custodial, operational and trading support to about 5,500 independent advisor firms, is a division of San Francisco-based Charles Schwab. Client assets custodied with Schwab Institutional stood at $575 billion on 30 June 2008. -FWR

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