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RIAs Optimistically Focused On The Future, Cognizant Of Evolving Competition And Actively Seeking To Differentiate

Charles Schwab Advisor Services released results of its 14 th semi-annual Independent Advisor Outlook Study ( IAOS) today from its IMPACT conference – the nation’s largest and longest-running annual gathering of RIAs. The study findings were cited frequently during today’s main stage presentation by Bernie Clark, executive vice president of Charles Schwab & Co., Inc., and head of Schwab Advisor Services, to the more than 1,900 independent registered investment advisors (RIAs) attending the event in Washington, D.C.

The current IAOS results reflect the opinions of more than 800 RIAs representing an estimated $228.5 billion in assets under management. The key findings include:

Business Outlook & Priorities

  • The majority of RIAs (70%) are very optimistic about the opportunities for growth in the next five years
  • By a ratio of almost two to one, RIAs are focused on positioning their business for future growth versus focusing only on current business needs:
    • The top two focus areas for firms preparing for growth are ‘differentiating in the market’ (17%) and ‘adopting and integrating new technologies’ (16%) 1

Competitive Landscape

  • Looking ahead, 71 percent of RIAs believe there will be more competition for new assets five years from now:
    • Top three competitors today: Other regional RIAs (74%), wirehouses (46%) and broker dealers (43%)
    • Competitors RIAs expect will increase the most five years from now: Other regional RIAs (66%), national RIAs (51% - up from 34% today) and online investment advisories (45% - up from 12% today).
  • The study reveals advisors see competitive pressures on several fronts:
    • Close to half (44%) expect regulatory changes to make other advisory models look more like independent RIAs
    • The same number (44%) believes the next generation of clients will seek advice from multiple advisors rather than consolidate assets with one advisor
  • Almost two thirds of advisors (60%) believe the need to differentiate from the competition is greater than ever.

RIA Firm of the Future

  • Leadership & staffing: 71 percent plan to find a successor to carry on the legacy of their business
  • Technology: One in three (34%) advisors would dedicate additional technology resources over the next five years towards creating a more paperless environment with document management and portal solutions; a further 27 percent would migrate key technology to the cloud to eliminate onsite management
  • Marketing: Online marketing (including social media) is expected to increase in importance with respect to driving new business; today four percent of advisors say it accounts for new business generation whereas 25 percent of advisors believe it will increase the most in five years relative to other ways to drive new business
  • Products: Advisors expect the top investment needs firms will have to address for clients five years from now will include ‘providing low cost index funds including mutual funds and ETFs’ (55%) and ‘providing investments with guaranteed minimum income’ (50%); two in five advisors cited that they will need to provide investment options that have not yet been created.

Next Generation Clients

  • Seventy-seven percent of advisors strongly agree that independence of RIAs will be more important to the next generation of investors than it is to investors today.
  • Close to half (44%) of the advisors surveyed believe investors 10 to 20 years in the future will want a different service model than today, but say technology is changing so fast and the needs are so different, they are unsure what this new service model will be.
  • Forty-four percent of advisors believe the next generation of clients will be more involved in investment decision-making than today’s clients
  • Half of RIAs (49%) think investors of the future are going to be more interested in using their wealth to make an impact

Role of Custodian

  • In terms of expectations of their custodian, the top three priorities for RIAs today (beyond asset security) are ‘enhanced technology integration’, ‘help navigating the regulatory environment’ and ‘providing best practices for firm management’
  • When advisors consider their future business, the top three future priorities with respect to expectations of a custodian are ‘invest and innovate with technology as a differentiator’, ‘advocate on behalf of RIAs’ and ‘provide consultative marketing support and expertise to help RIAs reach new investors and grow their business’

1 Advisors participating in the survey were asked to allocate a total of 100 points across nine potential areas their firm could choose to focus on to prepare for growth over the next five years.

About the Independent Advisor Outlook Study

The Independent Advisor Outlook Study, conducted for Schwab Advisor Services by Koski Research, has a 3.21% margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co. Inc. Detailed findings can be found at www.aboutschwab.com/press/research/advisor_research. All data are self-reported by study participants and are not verified or validated. Advisors participated in the study between September 30, 2013 and October 4, 2013.

About Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

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