As RIA Industry Comes of Age, Schwab Study Finds Firms Thinking More about Future Than Ever Before

  As RIA Industry Comes of Age, Schwab Study Finds Firms Thinking More about
  Future Than Ever Before

Independent advisors must balance needs of existing clients while preparing to
                      navigate uncharted territory ahead

Business Wire

SAN FRANCISCO -- June 26, 2013

According to the 13^th semi-annual Independent Advisor Outlook Study (IAOS)
released today by Charles Schwab Advisor Services, independent registered
investment advisors (RIAs) appear to have reached a turning point in the
industry’s progression. RIAs note a resurgence of confidence and a growing
understanding of what a successful RIA business of the future must look like.
While they are optimistic, advisors acknowledge emerging new challenges
alongside the opportunities that lie ahead: evolving client demographics, the
growing need to find and retain the best people and questions about how to
differentiate their firms to stand out from competitors and capture the next
generation of clients.

Bernie Clark, executive vice president and head of Schwab Advisor Services
(Photo: Business Wire)

Bernie Clark, executive vice president and head of Schwab Advisor Services
(Photo: Business Wire)

A similar sense of confidence, with an acknowledgment of reality, was echoed
by investors in a companion study, also released today by Charles Schwab.
According to Advice and the Affluent Investor: A Study of Attitudes and
Behavior (AAIS), affluent investors mirror and in some ways amplify the upbeat
outlook of advisors although they are not devoid of concerns.

Get Ready: Gen X and Gen Y Will Drive Firm Profitability Five Years from Now

The IAOS, which reflects the opinions of more than 1,000 RIAs representing
$235B assets under management, found that advisors are well aware of the
growing importance of the next generation of clients to their businesses.
Sixty-five percent of advisors say women, Gen X, or Gen Y will be a driving
force in their firm’s profitability five years from now.

While this next generation imperative is recognized, however, advisors are
more actively focused on existing clients and more immediate growth
opportunities. Two-thirds (67%) of advisors identify asset growth as a top
priority for their business in the next few years, with firm profitability now
driven by high net worth clients (68%), boomers (62%) and retirees (61%). Only
14 percent cite finding the next generation of clients as one of their top
business priorities today.

“Positioning their firms for sustainable long-term growth means RIAs have to
balance the demands of running a successful business today with the need to
make investments and take proactive steps to attract and meet the needs of a
new generation of clients,” said Bernie Clark, executive vice president and
head of Schwab Advisor Services. “RIAs have significant opportunity with the
clients who are right here, right now. But they also have to keep their eye on
how best to navigate the unchartered territory that lies ahead – it is a
delicate but important equilibrium.”

When considering how to attract and retain the next generation of clients, the
IAOS found that:

  *Ninety-five percent (95%) of advisors are purportedly interested in
    pursuing relationships with their clients’ children, but they see
    barriers. A third of advisors (33%) don’t think clients’ offspring have
    enough assets to be profitable for their firms, along with the fact that
    the children often live in a different geographical area (31%) and that
    they want to choose their own advisors (30%).
  *Seventy-seven percent (77%) of advisors believe the next generation of
    investors will expect an “anytime-anywhere” service model
  *Three quarters (76%) of advisors believe that they will need to spend more
    time engaging with both spouses in households

“RIAs must start to plan strategically for a generation of clients who will be
very different from their parents in terms of values, needs, behaviors and
expectations,” continued Clark.

Standing out from the crowd

Competition is growing in the RIA industry. Forty-three percent of advisors
agree that the number of new RIA firms entering the market means more
competition and 48 percent also believe that other types of advisor firms are
trying to more closely emulate the RIA model. Given this, 72 percent of
advisors are placing a greater focus on differentiating their firms from
others, and 71 percent see branding as becoming more important.

“With more advisors choosing the independent model, RIA lookalikes springing
up and new entrants to the space, independent advisors are contending with the
need to ramp up their efforts to differentiate their firms and set their value
propositions apart,” said Clark.

Given the strong relationship-based nature of RIA firms, finding the right
talent is critical to the independent model and to  attracting the next
generation of investors. Advisors surveyed believe they need to hire more
diverse (55%) and younger (46%) advisors, but two out of three advisors
acknowledge challenges with finding and retaining quality staff. Identifying
people with the right skills and experience is cited as the main challenge
(74%) followed by training new employees (32%).

Advisor/client relationship drives investors’ confidence and trust

In meeting their investment goals, three quarters (74%) of investors in the
AAIS report being extremely or very confident making investment decisions in
collaboration with their investment professional rather than making these
decisions all by themselves. The overwhelming majority (92%) want an advisor
who can look at their entire financial picture and they want transparency
around how their advisor is compensated for the advice they are providing

“Building trusted relationships with clients is an RIA sweet spot. The
independent model allows advisors to offer what investors want –
collaboration, customization, transparency and accountability,” said Clark.
“This invaluable combination sets RIAs apart from more conflicted models and
positions them very competitively for success.”

When affluent investors were asked in the AAIS about their trust in the
financial services industry, it is at the individual - not the company level -
where trust is being built: 72 percent of investors say trust is driven by
certain individuals versus only 42 percent by companies.

Market perspectives and investor sentiment

Not surprisingly, against the backdrop of the slowly-but-steadily improving US
economy and the extended bull run in the capital markets, both the IAOS and
AAIS underscore a broad return of confidence among RIAs and investors.

In fact, both surveys find that about six in ten – advisors (59%) and
investors (65%) - believe the S&P 500 is set to continue its rise over the
next six months. According to the AAIS, an equal proportion of investors also
believe their portfolios will perform the same as the S&P 500 over this time

Notably advisors and investors differ with respect to how easy or difficult it
will be to achieve their investment goals:

  *Almost half (47%) of investors say it will be extremely or very easy for
    their primary advisor to achieve their investment goals in the current
    market environment

The same percentage of advisors say achieving their clients’ goals will be
“difficult”, although this is a decrease from the six in ten (63%) who felt
this way in the previous wave of this study (July 2012). Despite pervading
confidence, the AAIS shows investors are not without some concerns. Among the
issues they are both concerned about and discussing with their advisors are
market volatility, the interest rate environment, inflation and tax increases.

But overall, advisors report in the IAOS that only one in five clients need
reassurance that they will achieve their long term financial goals, a drop
from almost one in three clients in January 2012 and a near return to January
2007 levels (16%).

Economic and investment outlook

On the economic front, since the last IAOS study in July 2012, more advisors
consider it likely that consumer spending will increase (56% up from 47%)
along with household debt (52% up from 40%). A greater number also consider it
likely that energy prices will drop (34% versus 20%) and that the US deficit
will decrease (34% versus 24%). On the flip side, a greater proportion of
advisors also think an increase in inflation or the unemployment level is less

The economic outlook is likely driving perceptions at the sector level.
Expectations for the top performing sectors in the next six months are
healthcare (40%), information technology (35%) and financials (29%), although
enthusiasm for information technology has dampened compared with July 2012
(down seven percentage points). Alongside expectation for increased consumer
spending, there is a notable uptick in expectations for consumer discretionary
(up six percentage points since July 2012) and industrials (up three
percentage points).

According to the IAOS, advisors believe clients are returning to the equities
market due to a willingness to take on equity risk amidst the low interest
rate environment (58%) and in order to tap into the bull market (54%). Around
a third of advisors in the IAOS study are planning to reorient client assets
to equities over the next six months: 35 percent plan to allocate more to US
equities, 31 percent to emerging markets equities and 23 percent to developed
market equities. Not surprisingly, 39 percent plan to invest less in US fixed
income over the next six months and 33 percent indicate they will allocate
less to cash.

Additional Insights

The Independent Advisor Outlook Study also covered a number of other areas of
importance to the RIA business. Detailed findings can be accessed in the full
report available at

About the Independent Advisor Outlook Study

The Independent Advisor Outlook Study, conducted for Schwab Advisor Services
by Koski Research, has a 3.3% 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 23, 2013 and May 3, 2013.

About the Advice and the Affluent Investor: A Study of Attitudes and Behavior

Advice and the Affluent Investor: A Study of Attitudes and Behavior, conducted
for Schwab Advisor Services by Koski Research, has a 3.3% margin of error.
Koski Research is not affiliated with nor employed by Charles Schwab & Co.
Inc. Detailed findings can be found at All data are
self-reported by study participants and are not verified or validated.
Investors participated in the study between April 24, 2013 and May 1, 2013.

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