As RIA Industry Comes of Age, Schwab Study Finds Firms Thinking More about Future Than Ever Before

Independent advisors must balance needs of existing clients while preparing to navigate uncharted territory ahead

Wednesday, June 26, 2013 8:30 am PDT



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"Building trusted relationships with clients is an RIA sweet spot. The independent model allows advisors to offer what investors want – collaboration, customization, transparency and accountability"

SAN FRANCISCO--(BUSINESS WIRE)--According to the 13th semi-annual Independent Advisor Outlook Study (IAOS) released today by Charles Schwab Advisor Services, independent registered investment advisors (RIAs) appear to have reached a turning point in the industry’s progression. RIAs note a resurgence of confidence and a growing understanding of what a successful RIA business of the future must look like. While they are optimistic, advisors acknowledge emerging new challenges alongside the opportunities that lie ahead: evolving client demographics, the growing need to find and retain the best people and questions about how to differentiate their firms to stand out from competitors and capture the next generation of clients.

A similar sense of confidence, with an acknowledgment of reality, was echoed by investors in a companion study, also released today by Charles Schwab. According to Advice and the Affluent Investor: A Study of Attitudes and Behavior (AAIS), affluent investors mirror and in some ways amplify the upbeat outlook of advisors although they are not devoid of concerns.

Get Ready: Gen X and Gen Y Will Drive Firm Profitability Five Years from Now

The IAOS, which reflects the opinions of more than 1,000 RIAs representing $235B assets under management, found that advisors are well aware of the growing importance of the next generation of clients to their businesses. Sixty-five percent of advisors say women, Gen X, or Gen Y will be a driving force in their firm’s profitability five years from now.

While this next generation imperative is recognized, however, advisors are more actively focused on existing clients and more immediate growth opportunities. Two-thirds (67%) of advisors identify asset growth as a top priority for their business in the next few years, with firm profitability now driven by high net worth clients (68%), boomers (62%) and retirees (61%). Only 14 percent cite finding the next generation of clients as one of their top business priorities today.

“Positioning their firms for sustainable long-term growth means RIAs have to balance the demands of running a successful business today with the need to make investments and take proactive steps to attract and meet the needs of a new generation of clients,” said Bernie Clark, executive vice president and head of Schwab Advisor Services. “RIAs have significant opportunity with the clients who are right here, right now. But they also have to keep their eye on how best to navigate the unchartered territory that lies ahead – it is a delicate but important equilibrium.”

When considering how to attract and retain the next generation of clients, the IAOS found that:

  • Ninety-five percent (95%) of advisors are purportedly interested in pursuing relationships with their clients’ children, but they see barriers. A third of advisors (33%) don’t think clients’ offspring have enough assets to be profitable for their firms, along with the fact that the children often live in a different geographical area (31%) and that they want to choose their own advisors (30%).
  • Seventy-seven percent (77%) of advisors believe the next generation of investors will expect an “anytime-anywhere” service model
  • Three quarters (76%) of advisors believe that they will need to spend more time engaging with both spouses in households

“RIAs must start to plan strategically for a generation of clients who will be very different from their parents in terms of values, needs, behaviors and expectations,” continued Clark.

Standing out from the crowd

Competition is growing in the RIA industry. Forty-three percent of advisors agree that the number of new RIA firms entering the market means more competition and 48 percent also believe that other types of advisor firms are trying to more closely emulate the RIA model. Given this, 72 percent of advisors are placing a greater focus on differentiating their firms from others, and 71 percent see branding as becoming more important.

“With more advisors choosing the independent model, RIA lookalikes springing up and new entrants to the space, independent advisors are contending with the need to ramp up their efforts to differentiate their firms and set their value propositions apart,” said Clark.

Given the strong relationship-based nature of RIA firms, finding the right talent is critical to the independent model and to attracting the next generation of investors. Advisors surveyed believe they need to hire more diverse (55%) and younger (46%) advisors, but two out of three advisors acknowledge challenges with finding and retaining quality staff. Identifying people with the right skills and experience is cited as the main challenge (74%) followed by training new employees (32%).

Advisor/client relationship drives investors’ confidence and trust

In meeting their investment goals, three quarters (74%) of investors in the AAIS report being extremely or very confident making investment decisions in collaboration with their investment professional rather than making these decisions all by themselves. The overwhelming majority (92%) want an advisor who can look at their entire financial picture and they want transparency around how their advisor is compensated for the advice they are providing (85%).

“Building trusted relationships with clients is an RIA sweet spot. The independent model allows advisors to offer what investors want – collaboration, customization, transparency and accountability,” said Clark. “This invaluable combination sets RIAs apart from more conflicted models and positions them very competitively for success.”

When affluent investors were asked in the AAIS about their trust in the financial services industry, it is at the individual - not the company level - where trust is being built: 72 percent of investors say trust is driven by certain individuals versus only 42 percent by companies.

Market perspectives and investor sentiment

Not surprisingly, against the backdrop of the slowly-but-steadily improving US economy and the extended bull run in the capital markets, both the IAOS and AAIS underscore a broad return of confidence among RIAs and investors.

In fact, both surveys find that about six in ten – advisors (59%) and investors (65%) - believe the S&P 500 is set to continue its rise over the next six months. According to the AAIS, an equal proportion of investors also believe their portfolios will perform the same as the S&P 500 over this time period.

Notably advisors and investors differ with respect to how easy or difficult it will be to achieve their investment goals:

  • Almost half (47%) of investors say it will be extremely or very easy for their primary advisor to achieve their investment goals in the current market environment

The same percentage of advisors say achieving their clients’ goals will be “difficult”, although this is a decrease from the six in ten (63%) who felt this way in the previous wave of this study (July 2012). Despite pervading confidence, the AAIS shows investors are not without some concerns. Among the issues they are both concerned about and discussing with their advisors are market volatility, the interest rate environment, inflation and tax increases.

But overall, advisors report in the IAOS that only one in five clients need reassurance that they will achieve their long term financial goals, a drop from almost one in three clients in January 2012 and a near return to January 2007 levels (16%).

Economic and investment outlook

On the economic front, since the last IAOS study in July 2012, more advisors consider it likely that consumer spending will increase (56% up from 47%) along with household debt (52% up from 40%). A greater number also consider it likely that energy prices will drop (34% versus 20%) and that the US deficit will decrease (34% versus 24%). On the flip side, a greater proportion of advisors also think an increase in inflation or the unemployment level is less likely.

The economic outlook is likely driving perceptions at the sector level. Expectations for the top performing sectors in the next six months are healthcare (40%), information technology (35%) and financials (29%), although enthusiasm for information technology has dampened compared with July 2012 (down seven percentage points). Alongside expectation for increased consumer spending, there is a notable uptick in expectations for consumer discretionary (up six percentage points since July 2012) and industrials (up three percentage points).

According to the IAOS, advisors believe clients are returning to the equities market due to a willingness to take on equity risk amidst the low interest rate environment (58%) and in order to tap into the bull market (54%). Around a third of advisors in the IAOS study are planning to reorient client assets to equities over the next six months: 35 percent plan to allocate more to US equities, 31 percent to emerging markets equities and 23 percent to developed market equities. Not surprisingly, 39 percent plan to invest less in US fixed income over the next six months and 33 percent indicate they will allocate less to cash.

Additional Insights

The Independent Advisor Outlook Study also covered a number of other areas of importance to the RIA business. Detailed findings can be accessed in the full report available at

About the Independent Advisor Outlook Study

The Independent Advisor Outlook Study, conducted for Schwab Advisor Services by Koski Research, has a 3.3% 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 23, 2013 and May 3, 2013.

About the Advice and the Affluent Investor: A Study of Attitudes and Behavior

Advice and the Affluent Investor: A Study of Attitudes and Behavior, conducted for Schwab Advisor Services by Koski Research, has a 3.3% margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co. Inc. Detailed findings can be found at All data are self-reported by study participants and are not verified or validated. Investors participated in the study between April 24, 2013 and May 1, 2013.

About 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.

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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,, 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 and

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Bernie Clark, executive vice president and head of Schwab Advisor Services (Photo: Business Wire)
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