More On Legal & Compliancefrom The Advisor's Professional Library
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
As we reported last week, the headline finding from Schwab Advisor Services’ first Women and Financial Independence Study is that high-net-worth women are primarily interested in advisors delivering good investment performance.
But Bernie Clark, who heads SAS, said in an interview Monday that the core message to advisors from the study of women with more than $1.3 million in investable assets is that “women are being underserved” by advisors, particularly considering that they represent “37% of the affluency” in the U.S., controlling $14 trillion in wealth now, which could rise to “more like $30 trillion over the next 30 years.”
Clark says women are saying “don’t treat us differently, but we are an important class of investors, and we have needs.” Some of those needs are the same as men's, he notes. But even when it comes to investing, for women “it’s not a matter of winning” the investment game, but “assuring they’ll have the income” to meet their needs. “They want to be known by their advisor,” and regardless of their advisor’s gender, they want the advisor to “understand their goals.”
Clark said the survey fits into Schwab’s themes of identifying the opportunities (and threats) that exist now and in the future for its RIA clients, including how to serve the next generation of investors and dealing with the intergenerational wealth transfer from aging baby boomers.
Clark admitted there was “work to be done” in increasing the number of female advisors in an industry that has been dominated by white men.
What’s Schwab’s role in bringing more women into the industry and in attracting more young people to the RIA business model? Clark said Schwab is supporting many organizations’ women’s initiatives inside and outside the firm, including organizations to survey the role of women in the industry and creating awareness of the issues.
“We’re starting with the universities,” he says, notably Texas Tech University and the University of California at Irvine, encouraging students in those schools to consider the RIA model once they graduate. “It’s hard for graduates to see RIAs” as a viable option for employment, while it’s relatively easy for them to see the large firms like the wirehouses who are more active in recruiting college graduates.
He also mentioned Schwab’s “RIA Stands for You” program; some of that program’s education efforts for investors will also assist RIA firms with recruitment, he says, and in encouraging those graduates who do “land in a big wirehouse to get experience, to then hang out their own shingles” with an RIA firm. A pet project of his, Clark says, is exploring whether Schwab could launch a training program for prospective advisors.
Beyond the issue of women, he says he sees many “trends mixing,” between women, younger investors and the boomers’ wealth transfer. “Demographics are important” to advisors’ maintaining success and “winning business in the future,” he says, but so is geography. As advisors' client base retires, becoming more “geographically diverse” as many of those retired clients move their primary residences, the argument strengthens for advisors to “maintain a Skype model along with an in-person model” of communicating with clients.
By the very “nature of independence," he said, advisors need to add capabilities in social media in addition to "maintaining their face-to-face services.”
Looking at Schwab’s recent benchmarking studies, Clark said advisors are “optimistic about the markets but cautious about achieving their clients’ goals, but noted that clients themselves have plenty of confidence in their advisors.
“The last couple of years have been a real bonding experience” for RIAs and their clients, he said, which is part of why there’s been double-digit growth of clients and assets among RIAs but similar-sized losses among wirehouses. While “wirehouses are not moving forward,” he said, concentrating more on “acquisition of assets” rather than worrying about the assets and clients they’re logging, they’re also “not going away.”
The wirehouses’ continued strengths can particularly be seen in their lobbying efforts in Washington. “Why are independent broker-dealers and the wirehouses lobbying about who should regulate RIAs?” he asked, concluding that “they’re trying to interrupt the flow of advisors and clients to independence.”
While recalling that it’s been “700-plus days since Dodd-Frank was signed,” he also suggested that in this pesidential election year “not much more will happen” in terms of new regulation, but worries that all the uncertainty on investing and taxation issues may be reflected in the markets.
“It’s all about confidence,” he said. Regardless of what regulatory and compliance changes are or aren’t made, Schwab will remain “aggressively active,” he vowed, in advocating for RIAs in Washington.