RIA Optimism Rising Sharply

Charles Schwab's latest independent investment adviser survey found 56% of advisers classify themselves as “bulls,” while only 10% see themselves as “bears.” 

The survey, taken from January 18-28, found registered investment adviser (RIA) optimism has risen significantly since July 2010. More than three-quarters of advisers surveyed (77%) expect the S&P 500 to rise in the next six months, up from 63% in the July 2010.

Sixty-eight percent of advisers think consumer spending will increase in the next six months, compared to only 42% in July 2010. Seventeen percent believe unemployment will increase, compared to 32% in July 2010. And 38% say the housing market will continue to soften, down from 53% last July.

When asked about various economic issues currently making headlines, advisers said the following:

  • U.S. Treasury yields: Sixty-four percent think U.S. Treasury yields will increase in the next six months, while only 8% think they will go down.
  • Bush tax cuts: An overwhelming majority (85%) believe the extension of the Bush tax cuts will have a favorable impact on the stock market and economy overall.
  • Quantitative easing: Fifty-five percent say the quantitative easing activities being conducted by the Federal Reserve will have a favorable impact on the stock market and economy overall.
  • Inflation: Sixty-four percent think inflation will increase over the next six months, up significantly from 28% six months ago.
  • Cost basis reporting changes: Nearly half of RIAs’ clients (48%) are unaware of the impact the recent changes to cost basis reporting will have on their tax situation.

The survey also found independent advisers’ interest in equities is likely to increase over the next six months. Thirty-nine percent of respondents said they will invest more in domestic large cap compared to 27% in July 2010. Twenty-eight percent plan to invest more of their portfolio in international large cap in emerging markets, while 22% plan to increase investment in international small cap in emerging markets. Only 9% plan to increase their investment in cash and 6% in fixed income.

Exchange-traded funds (ETFs) continue to be an investment vehicle of choice for RIAs, with 84% of those surveyed saying they currently use ETFs. Their popularity shows no signs of slowing down over the next six months: 31% of those surveyed say they plan to invest more in ETFs, the most of any investment vehicle. Alternative investments ranked second among advisers as the investment vehicle in which they expect to invest more, followed by actively managed mutual funds.

Client optimism is also rising, but not quite as sharply. Over the past six months, the number of advisers’ clients that needed reassurance that they will achieve their investment goals declined, falling to 23%, down from 30% in July 2010 and down from a high of 49% in January 2009.

Specifically, more than half of advisers’ clients (53%) feel more optimistic about the economy than they did in July 2010, and 56% of clients feel more positive about their investment performance than they did six months ago, up from 14% in July 2010. However, clients remain cautious about retirement with only 23% more optimistic that they will be able to retire on time. According to advisers, 34% of their clients are reducing expenses, down from 47% in July 2010, and 22% are spending more money on discretionary items, up from 8% last summer.