Business Is Good, But the Economy Not So Much

Most advisers believe the American Dream is alive, but that Millennials will have a harder time attaining the economic status of their parents, a study found.

With a month until the election, the mood of independent registered investment advisers (RIAs) is a study in big-picture optimism with a strong shot of short-term pessimism, according to the 12th semi-annual Independent Advisor Outlook Study from Charles Schwab Advisor Services.

Independent advisers are very bullish about their own businesses, and many are hiring, the study found. At the same time, they see a range of challenges facing their clients, particularly in the near- to mid-term and, year-over-year, their outlook for the economy and markets overall is trending negative.

For the first time, the study asked advisers for their perspectives on the American Dream, recognizing their unique vantage point as business owners and as professionals who have contact with individual investors. The result: advisers 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, observed Bernie Clark, executive vice president and head of Schwab Advisor Services. “It is a veritable mixed bag of risk and opportunity in which only one thing is very clear – the critical need for trusted advice,” Clark said.

Advisers are optimistic about their own businesses over the next four years: eight in ten are bullish regarding assets under management and firm profitability. More than one-third (37%) of advisers said they have hired new staff, especially in 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 advisers: 75% report their assets under management have grown over the past four years, and more than half (55%) report improved profitability.

Among the business and industry issues with a potential impact on business, regulatory changes (49%), changing client demographics (27%), succession planning (25%) and the costs of running an adviser firm (24%) rank highest of those topics advisers are following most closely.

Advisers are also optimistic about the American Dream. The majority (81%) believe it is still alive, but say the American Dream is different than it was a generation ago. Four in ten 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 advisers say it will be difficult to achieve clients’ goals, and they point to the 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.

“Advisers have a prism of reference that includes both the individual client’s personal and financial picture, and the adviser’s own experience as a business owner in this challenging economic environment,” Clark said.

Adviser 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% of advisers predict the performance of the S&P 500 will increase in the next six months, despite the fact that the S&P 500 is in fact approaching levels not seen since 2007.



More than half the advisers surveyed think the U.S. economy and the state of the capital markets have worsened in the past four years, and the rising economic optimism reflected in the Independent Adviser Outlook Study released in early spring has not been sustained.

Highlights of the study include:


  • 34% of advisers are bullish on the market now, down from 45% in January;
  • Advisers who think unemployment will increase have almost doubled – 33% versus 18%;
  • More advisers think inflation will increase – 50% versus 44%; and
  • More advisers are concerned about a double-dip recession – 23% versus 14%.

In terms of the impact on their investment choices, advisers are pulling back from U.S. large- and small-cap equities, and increasing allocations to cash and real assets. Thirty-two percent of advisers said they are likely to invest more in U.S. large cap, a drop of nine percentage points from earlier this year. A similar drop was seen for U.S. small cap (from 23% to 18%).

Exchange-traded funds (ETFs) are still the investment vehicle that most advisers are likely to invest more in the next six months – advisers register almost double or more the level of interest in ETFs compared with all other investment vehicles.

The upcoming election is affecting eight in ten advisers and their clients. Among these advisers: one in three indicate 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% say the election is a major topic of conversation in many client meetings, 40% avoid getting into partisan political discussions.

Whatever the outcome, advisers feel the top priorities of the newly elected president should include reducing the deficit (61%), increasing employment (53%) and reforming the tax code (52%).

The Independent Adviser Outlook Study, conducted by Koski Research, has a 3.3% margin of error. The study collected opinions of more than 830 RIAs representing $183 billion in assets under management, and was fielded between August 21 and August 31.

Other findings can be accessed in the full report.