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Advisors Optimistic, but Worried About Dodd-Frank, TD’s Schweiss Says: The Holiday Weekend Interview

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‘Tis the season for advisor outlooks for the coming year (and market outlooks, and economic outlooks and political outlooks, and on and on). One we always heed is TD Ameritrade’s quarterly survey of 500 RIAs, and especially the one conducted at year’s end. Skip Schweiss, managing director of advisor advocacy and industry affairs for TD Ameritrade Institutional, walked us through the latest numbers, and what they mean for advisory firms in 2011.

Q: What was the biggest surprise to come for the survey’s results?

A: Nearly half of RIAs indicated that they know little or nothing about the impact the Dodd-Frank Act will have on their business. That was shocking. Among RIAs with at least some knowledge of the [law], nearly 75% said that they would rely on third parties, such as attorneys, consultants and their custodians to help them manage their new responsibilities. This points to the role that education and outside resources will play for advisors. 

Q: But so much of its implementation is up in there air. Why would you find that shocking?

A: True, Congress has kicked the job of clarifying the legislation over to the enforcement agencies, in large part. And it’s creating so much uncertainty for advisors heading into the new year. The only item that’s really been clarified so far is the switch from federal oversight to state oversight for mid-size RIAs with under $100 million in assets under management. However, nearly 70% of RIAs surveyed agreed that they will have to add resources to manage the new regulatory requirements. Nearly 85% figure they’ll personally need to dedicate more of their time to compliance issues, taking them away from face time with clients.

Q: What about their overall levels of optimism or pessimism for 2011?

A: Advisors are more optimistic. They’re investing in their businesses, increasing spending on staffing, professional development and technology. This in-turn is driving revenue. So that is good news to come from the survey. Almost three-quarters indicated their firms experienced growth in the last six months, up 15% from the year prior. The majority of this growth continues to come at the expense of traditional full-commission firms; 64% of RIAs reported that the source of their new business is coming from broker-dealers and wirehouses, which is up 7% from the year prior.

Q: Where are they placing their resources?

A: Marketing and technology initiatives that help take advantage of the need for independent, fee-based advice. They also are adding capacity and scale as they take on new clients.

Q: How do advisors feel about the industry overall?

A: The majority continue to be happy with their careers, with 77% saying they’re satisfied. This is the highest level in the survey’s history, up 10% from the beginning of the year. This optimism is also reflected in their views on the economy, with nearly half indicating they are optimistic about the direction the economy is heading over the next three months.

Q: What are their top goals for 2011?

A: Heading into a new year, growth is the top goal again, followed by increasing client satisfaction and improving profitability. When asked what obstacles may prevent them from reaching their goals in 2011, they said not foreseeing obstacles, while others indicated employee management, operational efficiency and time management.

Q: How are advisors planning to position client portfolios?

A: Asset allocation remained fairly consistent, with a continued exposure to the equity markets and fixed income. About 15% is in international, 8% cash and 4% allocated to other assets. This is similar to the prior year, with a slightly lower exposure to the equity markets than 2010, but offset by an increase to international of 4%.

The technology, basic materials and oil and gas sectors are expected to be the best performing sectors over the next 12 months, while financials, utilities and consumer goods will be the worst performing sectors.