Advisers and clients view same market, see very different picture: Survey

Financial advisers are becoming more optimistic about the capital markets, but their clients, in general, are still waving the caution flag. According to Russell Investments' Financial Professional Outlook, 78% of surveyed advisers now maintain an optimistic outlook for the capital markets over the next three years. That's up from 66% three months ago. When asked how they believe their clients feel about the capital markets, however, only 18% of advisers said their clients are optimistic. The client optimism level is double what it was when measured at three months ago, but still represents a substantial — and growing —gap between adviser and client perceptions. The quarterly survey, which was completed in early February, includes responses from 593 advisers from 141 national, regional and independent firms. The full results will be released on tomorrow. Another example of the disconnect between advisers and clients involves the anticipated performance of a balanced portfolio in 2012. Advisers, on average, said they would expect a return of 5.9% this year, but they said their clients are expecting a balanced portfolio to return on average 6.5%. Through the first two months of 2012, a balanced model portfolio of stocks and bonds gained 6.9%, according to Frank Pape, Russell's director of consulting services. “Advisers have to manage those client expectations,” he said. “That's part of the role of an adviser.” Another challenge for advisers involves evaluating portfolio performance from a longer-term and macro perspective, Mr. Pape said. More than half of the advisers surveyed believe their clients tend to consider performance from a one-year perspective, but advisers are generally trying to get clients to think in terms of at least three years. Mr. Pape said it is also a mistake to discuss performance primarily in the context of a popular domestic-equity benchmark. “In 2011, U.S. stocks outperformed non-U.S. equity by 13%,” he said. “If an adviser uses a broader or blended benchmark when discussing performance, it might lead to a more meaningful conversation.” One area where it appears advisers might be dropping the ball is conversations about taxes. According to the survey, only 21% of advisers are talking to clients about taxes and the effect they have on a portfolio. “Talking about taxes is a great way for an adviser to add value because it's a way of reminding clients of the great things they're doing on their behalf,” Mr. Pape said.