Asset Growth Ranked Top Business Priority Among RIAs, Profitability Driven By HNW Clients - Schwab

Eliane Chavagnon

28 June 2013

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 , Baby Boomers and retirees , 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 , and that they want to choose their own advisors .

Perhaps unsurprisingly, over three-quarters 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 .

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”

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 , information technology and financials 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.