LPL Financial receives high scores for investment performance and collaborative advisor relationship

LPL Financial ranks third in overall satisfaction nationally in the J.D. Power and Associates 2010 Full Service Investor Satisfaction Study.^SM  This is the third consecutive year that LPL Financial is among the top five investment firms nationwide in customer satisfaction. The study measures overall investor satisfaction with full service brokerage firms based on seven factors that influence the customer experience: Investment Advisor; Investment Performance; Account Information; Account Offerings; Commissions and Fees; Website; and Problem Resolution.

With an overall score of 791 on a 1,000-point scale, LPL Financial scores 22 points above the industry average. LPL Financial receives high scores in the two factors that have the highest impact on the overall customer satisfaction experience. In the Investment Performance factor, LPL Financial leads the industry with a score of 742 (39 points above the industry average) and ties for second in the Investment Advisor factor with a score of 875 (36 points above the industry average). While the market has experienced performance improvements in 2010, LPL Financial is the only firm in the study with an improved Investment Performance ranking in each of the past 3 years. LPL Financial customers say their portfolio performance is due to their investment advisor (69%), more so than to their own investment decisions or market fluctuations (10% and 21%, respectively).

“With an overall score of 791 on a 1,000-point scale, LPL Financial scores 22 points above the industry average.”

Since 2008, customers in the investment services industry have placed increasing importance on their investment advisor and less importance on the performance of their portfolio. According to customers, LPL Financial advisors develop strong relationships with them, and these customers are more likely to recommend their LPL Financial advisor than are customers of other investment firms included in the study. Customers say that LPL Financial has knowledgeable advisors who also inform them of up-to-date market trends and developments.

“Customers say that LPL Financial has knowledgeable advisors who also inform them of up-to-date market trends and developments.”

 At an industry level, customers who engage in a collaborative relationship with their advisor are far more satisfied with their investment firm, compared to those customers with a more “hands-on ” relationship. LPL Financial advisors demonstrate this particularly well, as nearly 3 in 4 customers say they have a collaborative relationship with their investment advisor.  This is due, in part, to LPL Financial advisors being among the most likely in the industry to discuss and incorporate customer risk tolerance and portfolio asset allocation and investment needs.LPL Financial customers are also more committed to their firm, compared to the industry average (43% highly committed), which is driven in part by an improvement in customers’ perceptions of the firm’s reputation. The relationships cultivated from the [LPL Financial] network of advisors results in the highest percentage of investors who say the advisor is actingin the investor’s best interests (97%).

This month I’m featuring an important research White Paper written by Burt White, LPL Financial’s Chief Investment Officer. I call it a “Coffee Cup” read, because you’ll want to settle in with a cup of joe and contemplate his foresight. Below are highlights, and I recommend downloading the full PDF report for your convenience. -Rose

The Phase After the Road to Recovery

Burt White
Chief Investment Officer
LPL Financial

From late 2008 until early 2010 the markets followed a road to recovery — they found a bottom, established equilibrium between buyers and sellers, emerged from recession to recovery, and shifted from a contracting to a rebounding economy.

In the next stage of the journey we expect to see the markets go from recession to recovery to growth. The market enters a period where the catalyst for growth will likely shift from stimulus-led to business-led and consumer-led expansion. The three stages of the Transition to Sustainable Growth are:

Transition Stage 1 — Committing to the Recovery (stage we have just entered): The market is unsure if this recovery is really sustainable. As this idea becomes accepted as reality, consumers and businesses become committed to the recovery and begin to spend to fuel future growth.

Transition Stage 2 — Preparing for Life Without Help: With consumers and businesses having committed to growth, the central banks of major countries start to hint at undertaking and even begin the tightening cycle. Markets and the economy must come to grips with the notion of growth without being propped up by government stimulus and accommodative policies.

Transition Stage 3 — The Market On Its Own Two Feet: With the tightening cycle across the globe in full force, growth shifts entirely onto the backs of consumers and businesses.

Highlights

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The LPL Financial Current Conditions Index is a weekly measure of the conditions that underline our outlook for the markets and economy. The CCI provides real-time context and insight into the trends that shape our recommended actions to manage portfolios. This index has been a useful tool for investment decision making.

Over the past week, the LPL Financial Current Conditions Index rose slightly to 236, the highest level in the past year. The stock market has tracked the CCI closely this year as it did last year reflecting the attention investors are paying to real time measures of economic and market conditions as they assess the likelihood of a successful transition from recovery to sustainable growth. The level of the Current Conditions Index indicates an environment fostering strong growth in the economy and markets. We expect that the CCI may weaken in the latter half of 2010 to reflect an environment of slow growth.

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The CCI component that demonstrated the most improvement during the week was Shipping Traffic as inventory restocking continues along with rising demand. Retail Sales also improved with sales on a year-over-year basis jumping to 4.6% last week from 4.0% the prior week. Business Lending demonstrated some improvement in each of the past two weeks. While still down 18% year-over-year, bank loans have demonstrated a modest pick-up for the first time since early January. Disappointingly, Mortgage Applications deteriorated slightly in the past week even as interest rates fell slightly and the looming expiration of the first time homebuyer tax credit (buyers must have a signed agreement of sale by April 30 to qualify).

This month I’m featuring an important research White Paper written by Burt White, LPL Financial’s Chief Investment Officer. I call it a “Coffee Cup” read, because you’ll want to settle in with a cup of joe and contemplate his foresight. Below are excerpts, and I recommend downloading the full PDF report for your convenience. -Rose

The Phase After the Road to Recovery

Burt White
Chief Investment Officer
LPL Financial

In late 2008, when the recession was at its peak, LPL Financial Research rolled out the Road to Recovery, our roadmap of how we thought the market and economy would find its bottom and begin to recover. That journey unfolded almost exactly as we outlined from 2008 through the beginning of 2010. However, the economy does not stay in a recovery phase forever. Eventually, a recovering economy and revived market needs to evolve to one that shifts from healing to growing, recovery to prosperity, and survivability to sustainability. In a sense, the economy has already shifted from recession to recovery; now it gives way to the next series of mile markers, which will guide it from recovery to growth. The Road to Recovery is behind us now and the market’s next phase marks a new part of the journey: the Transition to Sustainable Growth.

The Next Step: The Transition to Sustainable Growth

In the next stage of the journey from recession to recovery to growth, the market enters a period where the catalyst for growth will shift from stimulus-led to business- and consumer-led expansion. The three stages of the Transition to Sustainable Growth are below:

• Transition Stage 1: Committing to the Recovery(stage we have just entered)
  The market is unsure if this recovery is really sustainable. As this idea becomes accepted as reality, consumers and businesses become committed to the recovery and begin to spend to fuel future growth.
• Transition Stage 2: Preparing for Life Without Help
  With consumers and businesses having committed to growth, the central banks of major countries start to hint at undertaking and even begin the tightening cycle. Markets and the economy must come to grips with the notion of growth without being propped up by stimulus and accommodative policies.
• Transition Stage 3: The Market On Its Own Two Feet
  With the tightening cycle across the globe in full force, growth shifts entirely onto the backs of consumers and businesses.

Click on the image for a larger view

Investing During Transitions
Before diving into more details on the three stages of the Transition to Sustainable Growth, let’s focus on some key rules for investing during periods like this. There are nine rules for navigating a market in transition:

1) Take Bigger Bets in a Fewer Number of High Conviction Ideas: In a trendless market, there are fewer great ideas which will mean investors will have to concentrate on a smaller number of high conviction bets.

2) Establish Trading Ranges: A shifting market will experience multiple pullbacks, but be largely range bound. Therefore, the most successful strategy is to buy the dips and trim the rips meaning a more active re-balancing strategy is a way to success.

3) Benefit from Increased Volatility: When volatility spikes, so may opportunity.

4) Don’t Give it Away in Fixed Income: Don’t forget about the fixed income side of portfolios as the potential for rising rates could make risk-controlling bonds actually risky.

5) Don’t Forget the Simple Rules: Don’t fight the Fed. Listen to the market. Beware when the crowd gets too optimistic or pessimistic.

6) Use Alternative Strategies, Not Just Bonds, to Help Manage Risk: Once central banks begin to raise rates and bonds do not provide risk control anymore, investors should consider alternative strategies to help cushion the downside.

7) Invest in What You Know: 2010 is not the year to be a hero or to guess have a plan and follow it.

Manage Expectations: After last year, expectations are sky high. As the market transitions to fueling sustainable growth, market returns will likely be volatile and modest. Remember the famous quote by Oleg Vishnepolsky: when you are expected to exceed expectations, expect the unexpected.

For the full report, download the PDF:

theWhitepaper February 2010

Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

Groundhog Day came late in February for the stock market. Last Thursday’s
worsening weekly unemployment claims data spooked stock market
investors worried about job growth as February winter storms negatively
impacted the data. 

Groundhog Day Comes Late

In that labor report, the stock market saw its shadow
and it appears that investors are in for six more weeks of winter weather
affected reports contributing to stock market volatility. Everything from retail
sales to manufacturing to the job market is likely to have been affected
by the unusually bad winter weather in February. The most signifi cant of
these may be the Employment report for February, due this week on Friday
morning, which is likely to show another month of job losses that were
exaggerated by the winter storms.

Some Highlights:

• Last week, the stock market saw its shadow
  and we are in for six more weeks of winter
  weather affected reports contributing to stock
  market volatility.
• One way to invest in a low-return, volatile market
  is to focus on yield rather than solely on price
  appreciation.
• The added advantage of incorporating a focus on
  dividends now is that March and April tend to be
  the time of year when most companies increase
  their dividend payment.
• We expect dividend payments to rebound
  in 2010, including those from the Financial
  sector as dividends are reinstated, since some
  companies now have both the ability and
  incentive to pay dividends.

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Groundhog Day Comes Late

Events and data in recent weeks have prompted market participants to view the tailwinds that caused the markets to go sailing higher for much of 2009 as beginning to fade. They now view them as having become more balanced with the rising headwinds associated with increasing global frictions.

We continue to expect the powerful economic and profit growth to weaken in the second half of 2010. The weakening is likely to result from the fading of the extraordinary global policy efforts that created a tailwind for growth and the rise of new headwinds as some actions are reversed. The early stage of this transition is already underway leading to heightened market volatility. While there is still plenty of good news acting as tailwinds for the markets, there is increasingly more of a balance with the bad news, or headwinds. The winds of change blowing in the markets include the following:

Tailwinds

1. -The Federal Reserve (the Fed) is our friend (for now)
2. -U.S. Gross Domestic Product (GDP) growth is above average
3. -S&P 500 earnings growth is strong
4. -Credit and housing markets continue to heal
5. -China’s double-digit GDP growth (but slowing loan growth)
6. -Steep yield curve
7. -Massive global fiscal stimulus in the pipeline

Headwinds
-No job growth (yet)
-Federal, state and local budgets are awful
-Anti-business tone in Washington
-Commercial real estate woes remain
-China and India inflation risks
-European debt problems exacerbated by weak economies
-Bank lending is weak

These are not in any particular order since the importance placed on them by the market varies from day to day. Some of them will switch from being tailwinds to headwinds this year, like the actions of the Federal Reserve, while others may switch from being headwinds to tailwinds such as job

Want more details?  Click here to explore each of the winds that are currently driving the choppy market environment.

LPL Financial Research Weekly Market Commentary

Over the past week, the LPL Financial Current Conditions Index rose by 0.2 to 1.6, making a new high for the year. The index reflects current conditions aligned with the high end of our base case outlook and low end of our bull case outlook, established at the end of last year. Consistent with this outcome, the markets have achieved gains better than our original base case outlook for 2009, but not as strong as those in our bull case.

The improvement in the index can be primarily attributed to Retail Sales and Shipping Traffic. Most components of the CCI have improved substantially since the start of the year.

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The LPL Financial Current Conditions Index is a weekly measure of the conditions that underpin our outlook for the markets and economy. The CCI provides real-time context and insight into the trends that shape our recommended actions to manage portfolios. This index has proven to be a useful tool for investment decision-making. This weekly index is not intended to be a leading index or predictive of where conditions are headed, but a coincident measure of where they are right now. We want to track the conditions in real-time to aid in investment decision making.

There are thousands of indicators-some lead the economy, some lag, while others merely offer a lot of statistical noise. We chose to create our own index tailored to the current environment to provide the clearest and most useful way to track how conditions are aligned with the expectations embedded in our investment recommendations. The components of the CCI are periodically changed to retune the index to those factors most critical to the markets and economy over the next year so it may continue to be a valuable investment decision-making tool. 

Current Conditions Index 

Over the past week, the LPL Financial Current Conditions Index rose by 0.1 to 1.4, making a new high for the year. The CCI has had a late year growth spurt over the past several weeks. The index refl ects current conditions aligned with the high end of our base case outlook, established at the end of last year, for mid-teen gains in the stock market and mid-single digit gains in the bond market in 2009, as measured by the S&P 500 index and the Barclays Aggregate Index respectively. The markets have already achieved these gains. However, the CCI implies the economy and markets are on track for an outcome somewhat better than our original base case outlook for 2009.ver the past week, the LPL Financial Current Conditions Index rose by 0.1 to 1.4, making a new high for the year. The CCI has had a late year growth spurt over the past several weeks. The index refl ects current conditions aligned with the high end of our base case outlook, established at the end of last year, for mid-teen gains in the stock market and mid-single digit gains in the bond market in 2009, as measured by the S&P 500 index and the Barclays Aggregate Index respectively. The markets have already achieved these gains. However, the CCI implies the economy and markets are on track for an outcome somewhat better than our original base case outlook for 2009.