Bernie Clark, Executive Vice President And Head Of Schwab Advisor Services (Photo: Business Wire)

Addressing a gathering of more than 160 independent registered investment advisors (RIAs) at its annual EXPLORE ^® conference today, Bernie Clark, executive vice president and head of Schwab Advisor Services, revealed new Schwab research on “ Generation Now” - affluent individuals between the ages of 30 and 45 who are following on the heels of advisors’ current pre-retired or retired clients. Schwab believes these affluent investors, who currently control nearly $3.5T in investable assets, ¹ represent one of the most significant opportunities for RIA firm growth in the decade ahead.

“The findings from our Charles Schwab Generation Now Study for RIAs give RIAs an important window into who these individuals are, how they think and feel about the world around them, what matters to them, how they make decisions and their attitudes about investing, finances and advice,” said Clark. “We are excited because the research clearly shows that the RIA model is right for these individuals, and these insights provide a jumping off point for us to work together to construct the strategies for growth and transition that will help enable RIAs to continue their success.”

‘Generation Now’

According to Schwab’s latest Independent Advisor Outlook Study (IAOS), advisors report that 40 percent of their clients are retired and 30 percent are less than ten years from retirement. Among clients who are already retired, 60 percent are drawing down assets, including principal, from their portfolios. Acquisition of future assets has become an important opportunity for many in the industry.

In the Generation Now Study (so named to reflect the immediate opportunity this group represents for independent advisors), Schwab Advisor Services set out to understand the investing mindset of this group in order to share insights and work with RIAs to understand implications for everything from client service and talent management to succession and legacy planning.

The study found that while these individuals share many of the same financial goals as RIAs’ current clients, they have defining characteristics related to their outlook on life and finances:

• They are anxious: Having lived most of their lives through one of the longest recessions this country has ever experienced, they have been impacted in ways as much psychological as financial. The instability of housing and dot-com bubbles, terrorist attacks, rising unemployment and geopolitical clashes dominated the early part of their lives creating a pervasive sense of insecurity about the future and a shaken belief in the long term. Certain that the next crash or crisis will occur, they worry about being able to provide for their families.
• They approach investing and advice with distrust: Their fear and insecurity, combined with distrust of financial institutions and professionals, keep them focused on short term versus longer-term needs. Their cash savings rates are high and even those with $4-5 million in investable assets worry about budgeting and spending levels. Cash represents a tangible safety net they can trust. When it comes to their perceptions of financial services professionals, many cannot differentiate between types of financial advisors, and they distrust the profession generally. They think that advisors don’t understand them. Further, they question advisors’ ability to deliver unique insights and expertise, feeling often that they recite corporate talking points.
• They dream of financial freedom: Success for this generation is having the freedom to avoid hardship and to not be a burden to others. They want to live free from worry about the unexpected, and every now and then, to be spontaneous. This group is facing a longer retirement than any generation before them and needs to plan for this reality. Accordingly, they have reframed their perceptions of what success looks like. Success means having enough to cover healthcare, education, housing and elder care costs – and protecting against the unknown. When asked about what they would do once they had financial freedom, almost all who participated in the study said travel. This desire for life experiences trumps flashy lifestyles and material goods.

“Every generation has had its defining moments, but this group’s life experiences up to now have been punctuated by persistent instability,” said Clark. “Our findings reveal that Generation Now investors want a trusted guide with expert knowledge who deeply understands them and their unique needs. We believe independent advisors fit that need, but this generation just doesn’t know it yet.”

When considering their ideal relationship with a financial advisor, Generation Now Study participants indicated they are seeking:

• Custom Relationship: They are looking for an advisor who can build a trusted and transparent relationship, based on empathy and understanding of the whole person, not just their financial goals.
• Collaboration: Generation Now is often juggling a myriad of complex and sometimes competing financial needs and concerns. They want their advisor to provide planning and financial advice alongside expert advice in other related areas, such as tax or insurance. Generation Now also has a strong research bias and will expect to be heavily involved in decisions about their investment strategy.
• Accessibility: Generation Now, having grown up in a 24/7, on-demand world, has a desire to communicate with advisors when and how they want with access when they need it. This means a combination of in-person meetings as well as voice, text, email and videoconferencing.

Seizing the Opportunity

“The growth and success of independent advisors is due as much to their unrelenting focus on their relationship with clients today, as to their ability to anticipate and prepare their businesses for what lies ahead,” said Clark. “The key to winning the trust of Generation Now is to understand their mindset. But we believe that independent advisors can also differentiate their firms in the eyes of these investors from other financial services models through marketing and referrals, the client experience, and talent acquisition that will position them to seize this opportunity.”

Schwab has been actively investing in resources and programs to support and prepare RIA firms for future growth and change. Its efforts include the Schwab Executive Leadership Program launched this year, ongoing support of universities and internship programs that help connect independent advisors with tomorrow’s advisor talent, as well as delivering technology that empowers advisors to deepen their client relationships while also scaling their businesses. Schwab will also introduce a new practice management program later this year focused on helping advisors create a firm wide strategy of growth through referrals.

About the Charles Schwab Generation Now Study for RIAs

Charles Schwab Generation Now Study for RIAs was conducted for Schwab Advisor Services™ by Egg Strategy, a strategic research firm. The study, which was released in 2014, included 40 participants, men and women ages 30-45 with earned or inherited investable assets of $500K (excluding real estate and business holdings), or a house-hold income of at least $150,000. The term Generation Now reflects the immediate opportunity that this incoming cohort of high-net-worth investors may represent for RIAs. All data was self-reported by participants and not validated or verified. Egg Strategy is not affiliated with nor employed by Charles Schwab & Co., Inc. Investors participated in this study between March, 24 2014 and April, 11, 2014.

An executive summary of the Charles Schwab Generation Now Study for RIAs is available at: www.aboutschwab.com/press/research/advisor_research.

About the Independent Advisor Outlook Study (IAOS)

The current Independent Advisor Outlook Study reflects the opinions of 720 independent advisors representing an estimated $180 billion in assets under management. The current wave set out to better understand advisors’ perspectives about the opportunities and challenges they see with respect to the next generation of clients, including the ways in which they are planning to augment their strategies for business growth and their client service models.

The results of the study have been released in a separate news release and detailed findings can be found at  www.aboutschwab.com/press/research/advisor_research.

The IAOS, conducted for Schwab Advisor Services by Koski Research, has a 3.65% margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co. Inc. All data are self-reported by study participants and are not verified or validated. Advisors participated in the study between April 15 and May 6, 2014.

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.

More information is available at  www.aboutschwab.com. Follow us on Twitter,  Facebook,  YouTube, LinkedIn and our  Schwab Talk blog.

Disclosures

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE:SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member  SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at  www.schwab.com and  www.aboutschwab.com.

For general informational purposes. Meant for institutional audiences.

Independent investment advisors are not owned by, affiliated with or supervised by Charles Schwab & Co. Inc. (0614-3859)

¹ Cerulli – Lodestar, 2012E.

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