RIAs See Continued Growth Trajectory Ahead, with More Than Half Believing the RIA Industry Will Grow at a Faster Rate Than the Market

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. RIAs report that the bull market of the past six years has contributed positively to firm growth across areas including attracting new clients (23%), providing higher advisor compensation (16%), creating more capital to invest in firm growth and operations (13%), and driving the consolidation of client assets (13%). From this position of strength, 93% of RIAs believe the industry is on a continued growth trajectory, with more than half (53%) saying the industry has not fully matured and will continue to grow at a faster rate than the market.

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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.”

Advancements in technology help firms create a better client experience

The study found that technology is helping advisors deliver a better client experience (70%), is creating efficiencies that are making firms more profitable (67%), and is freeing advisors to spend more time with their clients (64%).

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%) or investors with under $100,000 in investable assets (43%). According to respondents, the benefits of using an automated investment management solution include being able to serve clients with lower minimums (29%) and being able to reduce the cost to serve certain clients (19%).

“Strategic plans for today’s RIAs are not complete without strong consideration for the role of technology - not only in helping to attract a new generation of clients, but also as a driver of competitive and differentiated client service helping to build business scale and efficiencies,” said Clark. “Whether it is the latest automated investment technology or the growing dominance of mobile and cloud-based solutions, we are committed to helping RIAs understand and deploy the technologies that will have the greatest impact for their business.”

Firm services – opportunities for differentiation

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%), the findings indicate a range of views regarding the definition of holistic wealth management. For most, investment management (97%), tax-efficient planning (77%) and long-term financial planning (76%) 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.

Hiring and creating a diverse workforce is increasingly important

Advisors have reported client retention rates of 97% 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%). Additionally, more than half of all firms are currently hiring, with larger firms ($500 million or more AUM) reporting more aggressive hiring plans (79%) than smaller firms (54%).

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%), whereas for smaller firms there is an equally important focus on hiring individual tenured advisors (17%). While firms are experiencing high employee retention rates, they are reporting that it is more challenging finding business development roles (19%) and investment professionals (16%).

As they seek to add staff, 57% of advisors consider creating a more diverse workforce (i.e., age, gender and race) as a priority, including 28% who report they have already taken action to hire diverse employees. In order to attract more diverse employees, close to half of advisors (44%) are expanding their networks to identify diverse candidates.

Investing in people – equity ownership, training, and development

Data from the survey shows that advisors are increasingly making investments in their people in multiple ways. Nearly one-third of firms (30%) offer equity ownership opportunities to their staff and nearly half (49%) have a documented path to ownership, one that typically results in equity owners buying in (57%). Among firms offering equity ownership, 93% 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%) and in order to retain the best talent (42%).

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% vs. 21%), but 37% 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%), but firms are also supporting additional education and certifications for staff (66%) and a third of firms offer a formal in-house training program (33%). RIAs identified the biggest development needs among their staff as business development skills (26%) and training to be able to fully leverage technology in workflows (20%).

“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.”

Detailed findings from the Independent Advisor Outlook Study and the 2015 Charles Schwab Firm of the Future Study can be found at http://www.aboutschwab.com/press/research.

About the Independent Advisor Outlook Study

The Independent Advisor Outlook Study, conducted for Schwab Advisor Services by Koski Research, has a 3.9% margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co. Inc. All data are self-reported by study participants and are not verified or validated. Advisors participated in the study between April 28 and May 11, 2015.

About Charles Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

More information is available at www.aboutschwab.com. Follow us on Twitter, Facebook, YouTube and LinkedIn.

Disclosures

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE:SCHW) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.

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