Independent registered investment advisors (RIAs) have a pronounced sense of optimism about the state of the industry, their firms and the future, according to the latest Independent Advisor Outlook Study (IAOS) from Charles Schwab.
According to a release, RIAs report that the bull market of the past six years has contributed positively to firm growth across areas including attracting new clients (23 percent), providing higher advisor compensation (16 percent), creating more capital to invest in firm growth and operations (13 percent), and driving the consolidation of client assets (13 percent). From this position of strength, 93 percent of RIAs believe the industry is on a continued growth trajectory, with more than half (53 percent) saying the industry has not fully matured and will continue to grow at a faster rate than the market.
The IAOS results reflect responses from 629 RIAs representing $229 billion in assets under management (AUM) custodied with Schwab and found that advisors are taking steps across a range of strategic and operational fronts to support their growth and set their firms up for success in the future. Looking at the next five years, the top three priorities for growth are adoption and integration of new technology, differentiation of their firms in the market, and adding staff.
“The independent model is resonating with both investors and with advisors, and this is driving the dramatic growth we have witnessed to date and expect to continue in the decade ahead,” said Bernie Clark, executive vice president and head of Schwab Advisor Services. “It’s clear that the environment in which we operate is changing. From emerging clients and the next generation of advisors, to new technologies that change the way firms work, RIAs have the opportunity to capture an increased share of the affluent market and to take decisive actions now to lay the groundwork for their firm well into the future.”
The study found that technology is helping advisors deliver a better client experience (70 percent), is creating efficiencies that are making firms more profitable (67 percent), and is freeing advisors to spend more time with their clients (64 percent).
With an eye towards automation in the workplace, nearly half of firms said they would most likely use automated investment management to target younger, next generation investors (48 percent) or investors with under $100,000 in investable assets (43 percent). According to respondents, the benefits of using an automated investment management solution include being able to serve clients with lower minimums (29 percent) and being able to reduce the cost to serve certain clients (19 percent).
The study also found that differentiating firm services may be an opportunity for advisors. While a majority of firms believe that they offer holistic wealth management (77 percent), the findings indicate a range of views regarding the definition of holistic wealth management. For most, investment management (97 percent), tax- efficient planning (77 percent) and long-term financial planning (76 percent) typically make up a firm’s core offer to clients. Services such as financial planning for children, estate planning, charitable planning, and health care planning are more likely to be considered value-added services by advisors.
Advisors have reported client retention rates of 97 percent in past studies, and the latest IAOS findings indicate that RIAs are experiencing high employee retention rates as well, specifically in the areas of business development and investment professional roles (both 98 percent). Additionally, more than half of all firms are currently hiring, with larger firms ($500 million or more AUM) reporting more aggressive hiring plans (79 percent) than smaller firms (54 percent).
Across firms of all sizes, adding staff in operational and support roles is the top talent acquisition priority. For larger firms, this is followed by bringing on junior advisors (23 percent), whereas for smaller firms there is an equally important focus on hiring individual tenured advisors (17 percent). While firms are experiencing high employee retention rates, they are reporting that it is more challenging finding business development roles (19 percent) and investment professionals (16 percent).
As they seek to add staff, 57 percent of advisors consider creating a more diverse workforce (i.e., age, gender and race) as a priority, including 28 percent who report they have already taken action to hire diverse employees. In order to attract more diverse employees, close to half of advisors (44 percent) are expanding their networks to identify diverse candidates.
Data from the survey shows that advisors are increasingly making investments in their people in multiple ways. Nearly one-third of firms (30 percent) offer equity ownership opportunities to their staff and nearly half (49 percent) have a documented path to ownership, one that typically results in equity owners buying in (57 percent). Among firms offering equity ownership, 93 percent believe employees with an equity share are more likely to grow with the firm. Firms that offer ownership do so to ensure the long-term success of their firm (46 percent) and in order to retain the best talent (42 percent).
Equity ownership opportunities are increasingly more likely as a firm’s AUM grows – firms with more than $100 million are two and half times as likely as those under $100 million to offer equity ownership. Larger firms ($500 million or more) currently offer equity ownership more often than smaller firms (52 percent vs. 21 percent), but 37 percent of smaller firms report that they are looking into offering equity ownership in the future.
Informal, on-the-job training is the most common approach to training staff (88 percent), but firms are also supporting additional education and certifications for staff (66 percent) and a third of firms offer a formal in-house training program (33 percent). RIAs identified the biggest development needs among their staff as business development skills (26 percent) and training to be able to fully leverage technology in workflows (20 percent).
“Attracting, growing and keeping clients is directly linked with a firm’s ability to first put together the right client teams – teams that reflect the diversity of the firm’s client base, and that bring a powerful combination of high touch relationship and technical skills. Based on these results, it’s clear that firms believe that it is also critical to keep these individuals invested in serving clients and engaged in the firm over the long term.”
The Independent Advisor Outlook Study, conducted for Schwab Advisor Services by Koski Research, has a 3.9 percent margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co.
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