Joining Financial Research Corp. as a research analyst in 2007, Strong examines the state of the industry and marketing effectiveness. She spoke to Aarti Maharaj about her recent research on advisors' views on how to position portfolios this year and next.

1. Your research suggests that advisors are maintaining higher cash allocations than in the past. Why?
On average, between 2007 and 2009, advisors reported that 21% of their clients moved a significant amount of money out of the market. But now investors are slowly coming back. In 2009, about 77% of advisors showed money- market outflows, to the point that close to $400 billion came back into the [equity and fixed-income] market. So advisors are now able to put that money back to work. Still, though, coming into this year, advisors had 16% more cash on their books than they would normally recommend.

2. What can advisors do to guide investors who are not confident back into the market?
It's all about taking a personal approach and talking to the client to bring them back...58% of the advisors we surveyed reported success when they take a much more personal approach with the client. This entails educating clients on their long-term strategy and why it's being recommended, explaining a tactical approach, detailing how the portfolio has been risk-adjusted. Another 44% of advisors reported having success at re-engaging clients with the market through the introduction of guarantees. Several products provide regular, predictable income, but the variable annuity is the main one offering a guarantee. [Some of these products] have been criticized and misunderstood because of their complicated nature, but they became very important to advisors and many investors who no longer have to fear market losses because of them. Another 29% of advisors found similar success when they slowly guided the client back into the market through fixed income securities or products.

3. How can your research benefit those in the industry?
It's aimed for asset managers so they can know directly what advisors are looking for, but it details advisors' perspectives and the impact of the credit crisis on their portfolio planning process. Recently, there has been a huge re-distribution of advisors because of the crisis. Some companies lost while some have gained advisors, and so more asset managers need to know what advisors are looking for so they can have a stronger relationship with them and provide client dialogue.

4. What type of fixed income is the best investment?
For advisors, there is not really one best investment. However, one product they use more is mutual funds, which have the largest book of business. It is a good idea when you look at where mutual funds stand today. But, advisors support the investor guidelines established, which often impose restrictions so that the funds stay within its stated objective. Keep in mind that advisors have to explain carefully how these restrictions can affect the client in the future.

5. How much opportunity is there still in the advisor channel?
A tremendous amount. Considering 60% of advisors said [in our surveys] that clients are holding more cash than target allocations would suggest, this is an opportunity for asset managers to provide a suitable alternatives that may help advisors pull these reluctant investors back into the market. Bank advisors (78%) and wirehouse advisors (63%) report this more than the other channels, but across all channels they indicate cash is currently higher than they would recommend.