Updated March 31, 2010.

(Dow Jones) Financial advisors plan to shift clients back into stocks as the market recovers, and may look to overseas markets and alternative investments to diversify portfolios and boost returns, according to several new research reports.

Ensuring clients are comfortable with the risk level of these moves will be key.

Financial advisors plan to decrease allocations to U.S. Treasurys, high-yield bonds and cash over the next 12 months, according to a survey of 900 financial advisors that Russell Investments conducted in February.

But no consensus emerged on where they'll invest clients' money. Overseas stock markets, both emerging and developed markets, were their top targets, followed by U.S. large-cap value and growth stocks.

"There is a general sense that advisors want to reallocate into equities," but are encountering "resistance to increasing risk from the investor," said Sandra Cavanaugh, managing director for Private Client Services, Russell's business serving financial professionals in North America. Financial services firm Russell Investments is a subsidiary of Northwestern Mutual Life Insurance Co.

Investors want to be in the stock market but in a less risky way, according to the research. Many have realized their tolerance for risk isn't as high as they previously thought.

The challenge for financial advisors, according to Cavanaugh, is understanding each client's risk tolerance.

More than half of the survey participants said they increased clients' allocations to emerging-market equities in recent months, while slightly fewer raised exposure to non-U.S. developed market stocks.

Separate research from Cerulli Associates indicates the market downturn that began nearly two years ago is stoking interest in alternative assets.

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