April 9, 2013

Going Indie? Afraid of Losing Clients? Don’t Be

Advisors in second year of independence say most clients were immediately on board with the switch, Schwab finds

Despite fears they might lose clients when going independent, 79% of advisors who switched to the indie model in the last two years say the majority of clients stuck by their side, Schwab Advisor Services reported Tuesday.

Source: Schwab Advisor Services. Click to enlarge.Forty advisors interviewed by Koski Research for Schwab Advisor Services in February and March said that client retention was one of their top three concerns when they moved to the independent model. Yet these advisors in their “sophomore” year who custody with Schwab said that not only did their clients agree to make the transition with them, but 60% were immediately on board when told about the change.

Jon Beatty“As one of the fastest growing segments of the financial services industry, it is clear that the appetite for independent advice is expanding as more and more advisors turn to the RIA space,” said Jon Beatty (right), senior vice president of sales and relationship management with Schwab Advisor Services, in a statement. “With industry growth comes more choice for advisors as they seek out a path to independence.”

Schwab cites industry research by Cerulli Associates that finds that the RIA industry has seen an 8% annual growth rate, more than doubling industry assets under management to $2.8 trillion from $1.3 trillion over the past 10 years.

Move to Indie Model Takes About Two Years

From the initial thought to the actual move, it took an average of two years to go independent, according to the interviewees, who have worked in the industry for 15 years on average and manage a median $100 million in assets.

Freedom, control, independence and personal service were the words they used to describe what they were looking for when they decided to make the move.

The vast majority of advisors, 98%, noted “the ability to provide more personalized service to clients” as being a very or somewhat important aspect in the decision to become an RIA. A full 95% spoke of “the preference to work for yourself,” while 93% mentioned the desire to earn a higher income. Also important was the need to “protect personal reputation” by moving to the independent model.

‘I Am Happier Now as an Independent Advisor’

And now that they are independent, all advisors interviewed said that if they had to do it over again, they would still make the decision to go indie. Nine in ten advisors said their firm is now better positioned for growth, while three in four wished they would have made the decision to turn independent sooner.

“Over 90% say, respectively, ‘I am happier now as an independent advisor’ and ‘I recommend going independent to other financial advisors,’” Schwab reported in the executive summary of its survey results. “The advice they would give other advisors is one of caution but action: be prepared, but just do it—don’t wait.”

Schwab helps advisors explore options for independence and offers the services of an advisor transition services team that works with them to develop a customized plan for their specific circumstances.

Schwab recently launched a new RIA Economic Discovery Tool that provides an at-a-glance hypothetical view of the financial benefits associated with the RIA channel as compared to other advisory models. After selecting an advisory model along with a few key estimates, advisors receive an economic analysis of an RIA’s earning potential, income growth and firm value over time. The analysis outlines what they stand to gain by switching to the independent channel.

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Read More Advisors on the Move in 2013: Diamond on AdvisorOne.
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