RIAs Upbeat On Business Growth Prospects But Predict Increased Market Competition - Industry Conference

Eliane Chavagnon

12 November 2013

While the majority of registered investment advisors (70 per cent) are “very optimistic” about their business growth prospects over the next five years, a similar amount anticipate greater market competition for new assets, according to Schwab’s latest Independent Advisor Outlook Study.

The findings were announced last week by Bernie Clark, executive vice president of at the firm’s IMPACT conference in Washington, DC. Some 1,900 RIAs attended the event.

Of the 800 RIAs surveyed - representing $228.5 billion in assets under management - 44 per cent believe that regulatory changes will “make other advisory models look more like independent RIAs.” The need to differentiate from the competition is therefore “greater than ever,” according to 60 per cent.

Respondents ranked “other regional RIAs,” wirehouses and broker-dealers as their top three competitors currently, at 74, 46 and 43 per cent respectively. Looking ahead five years, respondents still view regional RIAs as their main competitor, but to a lesser extent, down to 66 per cent. By contrast, a higher proportion cited national RIAs (51 per cent - up from 34 per cent today) and online investment advisories (45 per cent - up from 12 per cent today) as their top future competitors.

On the technology front, one in three advisors are considering additional technology resources over the next five years to create a “more paperless environment,” with another 27 per cent claiming they’d migrate to “the cloud” as a way of eliminating onsite management. (Click here to view a section of the 2013 FOX Family Office Benchmarking: Technology in the Family Office study which looks at this topic.)

Marketing, next gen

The finding that 71 per cent of RIAs anticipate increased market competition in the coming years comes at a time when wealth management firms generally have been intensifying their focus on reinforcing their branding and marketing capabilities.

As it stands today, only 4 per cent of the RIAs surveyed by Schwab attribute business generation to online marketing (including social media). However, a quarter of respondents believe this will be their prime driver of growth over the next five years, the firm found.

Digital communication is “changing the game,” Kevin Crowe, head of solutions at SEI Advisor Network, previously said. “It is vital for financial advisors to connect with clients and prospects through both digital and traditional mediums in order to become a more influential and valued provider.” View the full article here.

Interestingly, however, only 44 per cent of respondents believe that the next generation of clients will be more involved in investment decision-making than clients today. According to a recent SEI report, the shaky financial environment over the past few years has prompted many wealthy individuals to discount the role of the professional advisor and act independently (however, it also illustrated the risks of going solo, the firm said.)

Indeed, Schwab also found that nearly half of the RIAs surveyed believe that the next generation of clients will seek advice from multiple advisors, rather than consolidate assets with one advisor. And - perhaps unsurprisingly given increased noise about “mission investing” in recent time – 49 per cent anticipate that the future cohort of investors will be more driven to use their wealth to make an impact.

New initiatives

In line with the findings, Clark also unveiled several new Schwab initiatives for this year and 2014, the first of which was an online database of RIAs (“RIA Stands For You Advisor Directory”). He also announced details of the Schwab OpenView Mobile app, to be launched in early 2014.

Additionally, Schwab is developing a “next generation portfolio management system” called Project PM² , which will enable advisors’ clients to electronically sign important forms and approve wires on a mobile device. These tools are expected to be available early next year.

Meanwhile, in January, Schwab will welcome 30 participants to its new Executive Leadership Program - a one year program that will help prepare budding industry leaders to manage and grow RIA firms. The curriculum will focus on leadership, innovation, talent management, marketing and entrepreneurship.