Advisors are focusing on existing clients and immediate growth opportunities, with 67 per cent of RIAs identifying asset growth as a top priority for their business in the next few years, new survey findings show.

Advisors are focusing on existing clients and immediate
growth opportunities, with 67 per cent of RIAs identifying asset growth as a
top priority for their business in the next few years, new survey findings
show.

Firm profitability is now driven by high net worth clients
(68 per cent), Baby Boomers (62 per cent) and retirees (61 per cent), while only 14
per cent cited “finding the next generation of clients” as one of their top
business priorities today, according to Charles Schwab Advisor Services’ 13th
semi-annual Independent Advisor Outlook
Study. 

Over 1,000 RIAs representing $235 billion in assets under
management took part in the survey, which also showed that 65 per cent of advisors anticipate that women,
Gen X, or Gen Y will drive profitability at their firms five years from now.  

While an overwhelming 95 per cent of advisors are keen to pursue
relationships with their clients’ children, 33 per cent are worried that
profitability will be a challenge due to a lack of assets. Other concerns
include the fact that their clients’ children often live in a different
geographical area (31 per cent), and that they want to choose their own
advisors (30 per cent).

Perhaps unsurprisingly, over three-quarters (77 per cent) of
advisors believe the next generation of investors will expect an “anytime anywhere”
service model, Schwab said. On that note, a 2011 Spectrem study revealed that unreturned
calls were a key reason clients left advisors, while more recent research shows
that clients have become increasingly concerned about the quality of advisor
contact. “Given the availability of this level of communication it is now
becoming an assumption; clients expect that you are always available and they
expect a quick response,” Ed Orazem, president of Fidelity Family Office
Services, previously told this publication.

“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,” said Bernie Clark, executive vice president
and head of Schwab Advisor Services.

Standing out in an increasingly crowded market

The number of new RIA firms landing in the market of course
means increased competition; 48 per cent of Schwab’s survey
respondents believe that other types of advisor firms are “trying to more
closely emulate the RIA model” and as a result a large proportion – 72 per cent
– are trying to differentiate themselves, with 71 per cent viewing branding as
increasingly 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,” Clark said.

But in order to grow, RIA firms – especially given the
strong relationship-based nature of them – must ensure they find the “right”
talent. In Schwab's survey, 55 per cent said
they need to make more hires to be more diverse, while for 46 per cent hiring
efforts should be focused on attracting younger advisors. However, finding
people with the right skills and experience was regarded as the main challenge
by 74 per cent, followed by training new employees (32 per cent).

Relationships with individual clients key to trust; goals

According to Schwab’s Advice and the Affluent Investor: A Study of Attitudes and Behavior study, 72 per cent
of investors say trust is driven by certain individuals, compared to 42 per cent
who believe that companies are the primary builders of trust.

Both the IAOS and AAIS surveys suggest a broad return of confidence
among RIAs and investors, Schwab said. While 47 per cent of investors say it
will be “extremely or very easy” for their primary advisor to achieve their
investment goals in the current market environment, an equal proportion said
this will be “difficult” (although this is a decrease from the 63 per cent who
felt this way in July last year.)

Investors are concerned about market volatility, the
interest rate environment, inflation and tax increases, with one in five saying
they need reassurance that they will achieve their long-term financial goals –
an improvement from one in three in January 2012 and a near return to levels
seen in 2007, Schwab said.

Economic, investment
outlook

The number of advisors displaying optimism about consumer
spending rose from 47 per cent in July last year to 56 per cent in the
latest survey. Likewise, optimism regarding household debt is up 12 per cent
from 40 per cent, while more advisors are hopeful that energy prices will drop - although a larger proportion are less optimistic about inflation
and unemployment level, according to the findings. 

Specifically, advisors anticipate that healthcare (40
per cent), information technology (35 per cent) and financials (29 per cent)
will emerge as the best-performing sectors over the next six months. Schwab noted, however, that IT enthusiasm has “dampened” compared with July 2012, having dropped seven percentage points. The firm also observed a “notable uptick” in expectations
for consumer discretionary, it said - up six percentage points since July 2012
- and industrials, up three percentage points.