This year is less than two weeks old but is already shaping up to be a great year for registered investment advisors (RIA). At least they think so.
From tax cuts to low-cost ETFs, from economic optimism to a booming market, from asset growth to new clients, from investor awareness of fiduciary responsibility to inclusive hybrid robo advisors, the news is good.
And RIAs say they are in for a good year, according to a new survey out Tuesday.
“Looking ahead to 2018, RIAs generally like what they see – for their clients and for themselves,” said Vanessa Oligino, director of business performance solutions with TD Ameritrade Institutional, publisher of the 2018 RIA Sentiment Survey.
“The industry has over time been steadily growing, but growth has been accelerating recently,” Oligino said.
During the second half of 2017, RIA revenues grew by 15 percent, on average, compared to first half of 2017. Meanwhile, assets under management (AUM) grew 16 percent, on average, compared to the first half of the year, Oligino said.
The survey found that 78 percent of respondents expect their firm’s AUM to rise in 2018 and nearly half of the respondents expect assets to grow faster than they did in 2017.
Conducted between Nov. 27 and Dec. 7, before the tax cut bill was signed into law, the survey polled 300 RIAs overseeing, on average, $161 million in assets.
TD Ameritrade Institutional is one of the nation’s top custodians of RIA assets.
Advisors reported that the No. 1 item with an impact on client portfolios was tax reform, followed by corporate earnings and interest rate increases, the survey found.
Tax reform, signed into law by President Donald J. Trump just before Christmas, changed tax rates and brackets, leaving advisors working overtime fielding calls from clients with year-end tax planning questions.
“With the new tax law, it’s unlikely even the president’s tweets can derail this train,” said advisor Leon C. LaBrecque, managing partner and CEO of LJPR Financial Advisors, an RIA in Troy, Mich.
“A correction is possible, a geopolitical event is always a wild card, but I think the survey is pretty close,” LaBrecque said. “You have momentum, you have positive tax policy, and you have a motivated group of legislators facing election. Not bad foundation for a decent year.”
Even by the standard definition of a recession – gross domestic product shrinking over two successive quarters – a recession isn’t even possible until July at the earliest, he said.
Other findings from the survey include:
*14 percent of RIAs were “very optimistic” for the U.S. economy for the first six months of 2018.
*56 percent of RIAs were “somewhat optimistic” for the U.S. economy for the next six months.
*46 percent of RIAs expect stocks to move higher in the next six months and 23 percent expect them to decline.
*11 percent of RIAs expect bond prices to rise in the next six months and 49 percent expect them to fall, which also means that nearly one in two advisors think interest rates will rise. Rising rates are good for insurers.
The combination of low volatility fixed and equity markets, high valuations, and a correlation among international markets begs the question, “What’s wrong with this picture?” asked LaBrecque
A Smidge of Tarnish
Not a whole lot, which is why RIAs seem to be in such good spirits.
Even the specter of internet-based algorithms, known as roboadvisors, seems to have faded.
Only 1 percent of RIAs were “extremely concerned” and 45 percent were “somewhat concerned,” with roboadvisors, the survey found.
Two years ago, some advisors feared internet advice might put many flesh-and-blood advisors out of business, but since then a compromise model melding man and machine seems to have emerged in the market.
Awareness of the fiduciary responsibilities of RIAs has spread among investors who ask about fiduciary duty and invite discussion about the difference between RIAs and commission-based brokers, said Ric Lager, founder and president of Lager & Co., an RIA in Golden Valley, Minn.
“That all good for RIAs,” he said. “People have read the headlines and have asked their guy, ‘Are you a fiduciary? How do you get paid?’”
The survey did raise a few questions, though.
Mergers and acquisitions is no longer a favored strategy through which to grow the advisory practice, Oligino said.
Advisors have found M&A more difficult to consummate than expected, or haven’t reaped the kind of benefits they had hoped, she said.
One out of two advisors – 50 percent – cited regulations, 46 percent said a lack of consumer awareness of RIAs, and 43 percent said the transfer of wealth to nonclients were the top competitive threats to RIA growth in 2018, the survey found.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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