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Schwab Studies Why Advisors Grow

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For affluent investors, trust is the key factor in picking a financial advisor, Charles D. Goldman, an executive vice president of Charles Schwab & Co. Inc., told participants at the FPA annual meeting in Nashville.

Goldman, chief operating officer of the institutional unit of Schwab, San Francisco, said his company’s found trustworthiness scored 5 on a 5-point scale among advisor characteristics clients value most.

Next came competence, which scored 4.8, followed by quality of advice, at 4.7; planning for retirement goals, at 4.6; and performance, at 4.5.

Such factors are key to an investment advisor’s growth, Goldman said.

For their part, advisors are planning to grow moderately to aggressively over the next 5 years, Schwab found in another survey.

Among wealth managers, 70% of small firms (under $100 million of assets under management) planned to grow in terms of new assets for the next 5 years, while 80% of medium-sized firms ($100 million to $500 million) and 83% of larger firms (over $500 million) had plans for solid growth, Goldman said.

Among financial planners, 71% of small firms and 52% of medium firms had plans to grow (few large financial planning firms participated in the study).

Among money managers, 58% of small firms, 85% of medium firms and 91% of large firms expected to grow, Goldman reported.

Looking at actual growth for the previous 3 years by firms in the study, Schwab found small wealth managers averaged 26% annual growth in new assets, while medium firms averaged 27% and large firms averaged 26%.

Among financial planners, the growth was 23% and 24% for small and medium firms, respectively.

Money managers averaged 23% growth among small companies, 26% for medium companies and 27% for large firms.

Looking only at the top 20% of firms with more than $100 million in assets, the leading wealth managers reported an average 46% growth, while the top financial planners saw 50% growth and leading money managers, 56% growth, Goldman reported.

High-growth firms shared 3 characteristics, he added: a clear strategy and vision for their business; a strong management that planned and measured results; and a disciplined approach to marketing and business development.