Independent Wealth Houses Mostly Predict Double-Digit AuM Growth

Tom Burroughes

6 November 2019

The overwhelming majority of 942 independent investment advisors with assets held by Charles Schwab expect they will grow net new assets in 2020, with the average expansion rate at 20 per cent, a study shows.

The advisors, collectively managing a total of $336 billion, were polled by Schwab Advisor Services, part of Charles Schwab, to find out what they think future growth prospects are like and what forces mold the industry.

Some 31 per cent of advisors expect growth in net new assets to be 16 per cent or more; 18 per cent see it coming in at a range of 11 to 15 per cent and 27 per cent see the range at 6-10 per cent. The study showed that 18 per cent of respondents see a modest growth rate between 1-5 per cent in net new assets; 6 per cent said they expect no net new assets in the next year.

Another finding showed that 55 per cent of respondents see steady, if slow, growth ahead; just 2 per cent expect a decline.

The survey comes at a time when new RIAs, often formed by breakaway teams at large banks and wire-houses, continue to sprout. Data from organizations such as ECHELON Partners also shows continued brisk merger and acquisition activity in a sector contending with regulatory and other costs that encourage economies of scale.

Asked what causes the independent advisor business model to grow, 60 per cent of respondents said preference for independent advice versus other models is the reason; 22 per cent said the existence of robust systems – platforms and technology – that make independence easier is a factor; 10 per cent of respondents said that the existence of affluent investors drives growth.

On the flipside, 25 per cent of respondents said new forms of competition are a barrier to growth; 22 per cent said the cost of doing business is a hurdle and 20 per cent said the ability to stand apart from competitors is a growth challenge.

The great majority of advisors expect growth to be organic, leaving 10 per cent expecting acquisitions and mergers to be a factor at play.

Technology
In this Information Age, advisors were unsurprisingly asked about technology. Some 36 per cent said they expect to make technology changes in 2020; 32 per cent said they expect to adjust operations and workflow; and 24 per cent said they expect to change how they acquire clients. The balance of 21 per cent expect not to make changes next year.

Asked why new technology was not being put in place, 42 per cent said “client resistance”, followed by 29 per cent of advisors saying that the cost versus time and money saved was a drag factor. Some 72 per cent said faster service was a benefit of new technology, and 58 per cent said it cut errors, and 51 per cent said it freed advisors to concentrate on more complex tasks.

Another finding – which is a concern for larger organizations – is that staff in large firms are more likely to resist new technology than staff in smaller ones, a finding that fits with the idea that modestly-sized companies can be more nimble. Some 18 per cent of advisors from large firms had a tech resistance issue, while the response from smaller firms was just 8 per cent.

Different wants
Perhaps confirming some stock impressions of how Millennials, Gen-X and Baby Boomers view the world, the poll found that 74 per cent of advisors said it was important to discuss socially responsible investment and environmental, social and governance issues with Millennial clients; 61 per cent said it was important to discuss these issues with Gen-X clients, and only 40 per cent said this was the case for Boomers.

Among other factors, 45 per cent of respondents said they are helping clients to deal with cybercrime than in the past; this is the case with 59 per cent of advisors at large firms and 39 per cent at smaller ones. Fewer than half of respondents said they have resources to handle these concerns, suggesting that the sector must raise its game.