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RIAs Seek Growth For Long-Term Investment, Resilience – Schwab

Tom Burroughes

30 March 2023

A new report by , notes how growth, including via M&A deals, gives them the ability to invest in business for the long haul. The study also shows how data is increasingly important for running portfolios, operations and serving clients. 

The US report has been published after what has been a tough year for the wealth industry in some ways as stock markets tanked and rates rose.

Almost all (95 per cent) of the 862 advisors polled by the firm (from December 1 to December 15, 2022) said growth gave them the firepower to invest in the long term rather than focus on near-term developments, making it easier to handle risks. On the flipside, 75 per cent of respondents said growth made business more complicated, and 55 per cent said growth resulted in less centralized control by firms. 

The Schwab Advisor Services’ Independent Advisor Outlook Study also showed that RIAs “don’t need to be convinced of the value of data,” with 76 per cent of those polled seeing a chance to provide better client service and 56 per cent saying data can help streamline operations. (Such a result highlights why technology strategies remain crucial, a fact touched on in research reports from this news service, such as here.)

The study comes at a time when the pace of RIA growth in asset terms hit headwinds in 2022 because of volatile markets and falling stocks, and the US Federal Reserve’s rise in interest rates also blunted a busy trend of M&A growth transactions. (See a related analysis of how rates may affect deals.) That said, an underlying trend of multi-trillion-dollar intergenerational wealth transfer, a desire for more efficiency and tech solutions, continues to drive consolidation and growth in the RIA space and, to some degree, in multi-family offices also.

Schwab said it polled 862 independent investment advisors who custody assets with Schwab Advisor Services, representing a total of $359 billion in assets under management. The firm also carried out interviews with eight industry subject matter experts: three Schwab Advisor Services leaders, and five third-party participants. 

The study shows that a significant number of RIAs are already taking steps toward using data to enhance the client-advisor relationship. Close to half (47 per cent) say they are using data to identify the unmet needs of clients right now, with another 39 per cent saying they plan to do so in the next three years. Fifty-three per cent say they’re using data to anticipate the “next best actions” for serving their clients, and 35 per cent say they will do so in the next three years.

“I think RIAs are doing an unbelievable job at being reactive with data to meet client needs. But I don’t know that they’re using data to be predictive with their clients. For example, are they using data to uncover opportunities where they can create services for their client? The data might show that there’s a group of clients reaching a certain age or pursuing a certain lifestyle, and the advisor can identify how they can do more with them and, in turn, deepen the relationship,” Bernie Clark, managing director, head of Schwab Advisor Services, said in the report. 

Today, and over the next three years, advisors are twice as likely to have software and digital tools that will support data analysis (43 per cent) versus data analytics experts (21 per cent); they are also likely to turn to data warehousing capabilities for proprietary data (37 per cent) before they start purchasing custom data feeds.

The report also said that automation "brings forward the true value of the advisor" – playing to the idea that tech such as machine learning/AI can augment advisors' offerings, not make them redundant.

The majority of advisors polled (79 per cent) cite time savings as a top benefit of automation, followed closely by allowing staff to focus on higher value tasks (70 per cent), allowing people to spend more time servicing clients (67 per cent), reducing errors (65 per cent), and improving the client experience (57 per cent). 

The need to achieve growth comes with complexity. 

“As RIA firms grow, moving quickly and staying agile becomes more difficult. They may have more resources at their disposal, but they also have more decision-makers in the room,” Brian Hamburger, president and chief executive, MarketCounsel Consulting, said. 

Source: Schwab Advisor Services 

The report is an example of how Schwab continues to drive its brand and services in the wealth management space. In January this year Charles Schwab bought The Family Wealth Alliance, a network representing ultra-high net worth clients and wealth managers that was founded in 2003.