RIAs Much Less Optimistic about the Economy than Last Year

Forty-one percent of advisers surveyed in the second half of January said the S&P will fall in the next six months, compared to just 18% who said the same in July 2007, Schwab said in a press release. In addition, 81% of advisers said it is likely the housing market will continue to soften, and 78% said unemployment will increase in the next six months. Sixty-two percent also indicated they anticipate a rise in inflation in the next six months.

Bernie Clark, senior vice president of Schwab Institutional, said about one-quarter of advisers said their clients either postponed selling a home (26%) or discussed postponing retirement (23%). More than half of advisers (51%) said their clients have experienced real property loss in the last 12 months, and 67% indicated their clients are concerned about the impact of the sub-prime mortgage issue on their portfolios.

However, Clark also pointed out that only 18% of advisers said their clients needed reassurance during the last six months – “a testament to the strong relationships that investors have with their advisers.’

A Shift in Investment Strategy

With their optimism in the market down, advisers continue to view large cap stocks from both the U.S. and developed international markets as their preferred equity investments and expect to maintain or slightly increase their investments, Schwab said. Its study also found an increase in advisers’ plans to invest more in fixed income and cash. Fifty-one percent said their clients have asked for more conservative investments in the past year.

Interest in fixed income allocations has risen from 18% in July to 27%, and nearly twice as many advisers now say they will invest more in cash (28% vs. 16% in July) in the next six months. Additionally, 82% of advisers said they currently invest in exchange-traded funds (ETFs), and 36% indicated they plan to increase their investments in ETFs during the next six months.

Advisers expect health care to be the top performing sector in the next six months (46%), while consumer staples and energy tied for second place (35% each). Utilities, many of which pay cash dividends, surged to third place (30%).

Hong Kong ranks number one (35%) as advisers’ pick for the top performing developed international market during the next six months, Schwab found. Singapore ranked second (32%) and Japan and Australia tied for third (23%).

Schwab’s semi-annual Independent Advisor Outlook Study included responses from more than 1,000 independent investment advisers with $231 billion in total assets under management. The study was conducted January 17-28, 2008. Detailed results can be viewed here.