Despite experiencing challenges in their businesses stemming from COVID-19, independent advisors remain confident in the industry’s continued long-term growth, according to a new study.
With more than 1,300 independent advisors responding, Schwab’s Independent Advisor Outlook Study released at the firm’s IMPACT event finds that the overwhelming majority (91%) expect continued growth. Among the top drivers are preference for the independent model versus other models (64%) and robust platforms and technology that make it easier to go independent (20%).
Yet, while most advisors (82%) still expect growth this year, just under half (42%) expect lower growth in net new assets this year compared to original projections, reflecting the immediate impact from COVID-19 on their firms. By contrast, 20% of respondents report that growth is expected to be higher.
Schwab found that the average expected growth rate in new assets by the end of 2020 is now 11%. Most growth (93%) will come from organic sources (existing and new-to-firm clients) versus inorganic growth (e.g., M&A activity), the firm says. The top cited barrier to growth was new forms of competition (23%), followed by the impact of COVID-19 (19%) and the ability to differentiate from competitors (16%).
Not surprisingly, the top business challenges due to COVID-19 include planning in an uncertain environment (36%), clients’ ability to use technology to connect virtually (35%) and achieving client investment return goals (32%). What’s more, the survey finds that both advisors (78%) and their clients (86%) are concerned about a continued recession through 2021. Those levels have gone up from the firm’s May 2019 results, where 49% of advisors and 63% of clients expressed concern about a recession.
Embracing the Virtual Environment
One silver lining is that independent advisory firms have moved beyond adapting to the virtual work environment imposed as a result of COVID-19 and are actively embracing strategies for continued firm growth.
More than half of advisors (57%) believe the pandemic has provided a greater opportunity to demonstrate client service and relationship focus. Additionally, more than a third cite opportunities to leverage technology to seamlessly work remotely, the ability to differentiate from competition and the opportunity to develop better client relationships.
Independent advisors also expect many of this year’s workplace changes to continue in the future. More than half (56%) of advisors expect that the pandemic will lead to a reduced need for office space and 49% expect an increase in staff working remotely. In addition, nearly half of advisors (47%) expect that the increased use of video-enabled meetings with client and prospects is a permanent change.
“In the beginning of 2020, we saw independent advisory firms adapt to the new normal to be able to effectively run their businesses in the remote environment,” says Lisa Salvi, vice president, Business Consulting & Education at Schwab Advisor Services. “Over the summer, we saw a mindset shift as advisors recognized the new possibilities that come with the virtual and digitally-enabled business model, and now they are thinking ahead to how this will shape the long-term trajectory of their firms.”
The study was conducted for Schwab Advisor Services by Logica Research from Aug. 3-16, 2020, with responses from 1,347 independent investment advisors who custody assets with Schwab representing a total of $513 billion in AUM.
