Advisors consider the DOL’s “fiduciary” rule will lead to increased compliance costs, changes to client communications, and questions about fiduciary responsibility – but as for changes in the RIA firm itself…
According to Charles Schwab’s Independent Advisor Outlook Study Wave 19, two-thirds of advisors surveyed (65%) believe that the need differentiate their firm from competition will be greater than ever over the next five years. When it comes to the Labor Department’s fiduciary regulation, they see:
- 65% - Increased compliance costs for RIA firms
- 62% - Changes to the ways in which RIA firms communicate with clients about their retirement investments
- 57% - More questions/interest from clients in your fiduciary responsibility
On the other hand, just:
- 35% - See greater challenges for RIA firms to differentiate themselves from wirehouse firms (50% say no)
- 36% - See increased competition for RIA firms
- 35% - See changes to the types of investment products and solutions offered by RIA firms
And a mere 22% see changes to the organizational structure of RIA firms (e.g., hiring new staff or redirecting existing staff to manage changes stemming from the DOL rule) – though 28% admit they are not sure.
What’s Ahead
Nearly three quarters (73%) of advisors are “very optimistic about opportunities for registered investment advisors – RIAs – to grow in the next five years.” Two in three (66%) expect more competition for securing assets in this timeframe and, likewise, believe the need to differentiate their firms from competition is greater than ever (65%). One in three (38%) advisors report spending the majority of their time considering how to prepare for future growth. The majority of organic growth the next five years is expected to be driven by founders and principal-level equity owners.
The survey found that the percentage of clients needing assurance has changed little since May 2013 (pretty consistently at 20%), but the percentage of advisors saying that achieving goals will be difficult has increased, from 47% to 57%.
Firms’ current AUM are mostly comprised of “mature” assets (37%), “aging” assets (25%), and “mid-lifecycle” assets (23%). Perhaps not surprisingly, advisors feel most prepared to meet the needs of mature assets (91%), and mid-lifecycle/aging assets (88%) and less prepared to handle younger clients. However, they expect younger client assets will comprise 12% of their AUM in five years’ time.
To address expected movement in assets among the lifecycle stages, 58% of firms are investing in technology to meet a broader variety of investor needs and goals, and 41% are adding new services for clients with varying time horizons and needs.
Most advisors (66%) are seeking to attract clients similar to the ones they have now – and are hiring accordingly, however:
- 37% are factoring changing demographics into their firms’ succession planning
- 35% are aiming to attract and serve younger clients
- 29% aim to attract and serve female clients
- 10% plan to attract and serve more ethnically diverse clients
The Independent Advisor Outlook Study, conducted for Schwab Advisor Services by Koski Research, has a 3.2% margin of error. Advisors participated in the study from April 19 – May 1, 2016.
