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Bernie Clark, SAS’ Next-Gen Cheerleader: The 2014 IA 25

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When you’re the head of a large financial services organization, gravitas is your byword. So when a high-powered, high-profile fellow like Bernie Clark shows palpable excitement, and about a younger generation no less, you take notice.

I experienced this first last year at a New York breakfast meeting with Clark, who at the time had just met with a group of college students studying financial planning. He waxed enthusiastic about those younger people’s passion, about how social they were, but also about the similarities they have with the older generation of advisors. The conclusion: The advisor industry, and clients, will be in good hands with the next generation of advisors.

In an April interview for the IA 25, Clark warmed quickly to the subject. “The generation that’s coming behind: They look familiar, they talk about having balance in their lives, they want relationships, almost 70% want to be in relationship management. They’re very social and do so electronically. We’ll have to bridge some of those gaps, but it’s still social—they’ll look to social to help them make many of their decisions.” Because of their social media bent, the next generation of advisors may be able to accommodate more clients per advisor, he suggested, but their approach to life will also “favor a fee environment.” The next generation of advisors and clients is interested in “making long life choices and will be socially responsible,” Clark said, “but so was ours.”

That investment in the next generation of advisors is evidenced by Schwab’s intern program. In the first year of the program, under which students intern at Schwab offices, “five of 10 people got hired quickly; this year we’ve got 20 people in Orlando and Phoenix.” Schwab, he said, “may hire one or two of them, but our objective is to be in their local community” and for those students “to be talking about Schwab on their campuses.”

At the same time, Clark “worries mostly about diversity” in both the advisor and especially the client ranks. “After decades of talking,” he said, “how do we put into action” steps to improve diversity? “Women are underrepresented as clients,” and in general, “young people who walk into an advisor’s office will want someone to walk along with them, not somebody with 30 years’ experience,” he said. “Ethnicity and diversity will be more important in practices.”

However, Clark said that as the industry “creates these solutions” for younger clients, “we can’t forget that some boomers will love these new solutions and will communicate through these new channels.” Moreover, these social solutions will change the makeup of advisory practices. “Firms will become de facto national firms; they’re already starting to feel more like national firms because of their client base.”

He then turned to the importance of Schwab Advisor Services to Charles Schwab the company and Charles Schwab the person. “This business is half the company’s assets and a quarter of its revenue,” he said, and internally at Schwab, “we needed to not compete with each other, but rather act as one firm creating solutions along a continuum.” Schwab’s retail advice operations are “in the same business as advisors, who are in the high end.” He admitted that there may be “some open competition” between Schwab retail and Schwab’s RIAs, “but if a client happens to straddle the line, we may make a referral to an advisor or continue for a while at retail.” He mentioned that “I just met with Chuck the other day,” and that Chuck Schwab “looks at this business and sees the merit of it.” He “will be doing some print and digital advertising,” talking about the importance of Schwab’s RIA custody business, Clark said.

Robo-Advisors and Advisor Worries

As for the issue of robo-advisors and whether these providers of online advice pose a competitive threat to advisors, Clark believes “electronic offerings will complement what exists today. We’ve done a lot of work that shows most individuals still want a relationship” with a human advisor. “That doesn’t mean they don’t want to dabble or model; this generation wants to be hands-on,” but he suggested the solution may be for advisors to use some of the robo-advisors’ modeling tools “in their practices” and use them “for clients below their minimums, or children of clients.”

He concluded by pointing out that online advice hasn’t had to perform in difficult markets. “If we have five years of the markets heading straight up,” robo-advisors “will do well; if we have three years up and two years down,” investors “will want to talk to somebody.”

What are advisors worried about? Where do they need help? Clark said that while advisors “don’t see regulation as evil” and “embrace it internally, enforcement-based regulation doesn’t provide more protection for clients.” He recalled that in 2008 and 2009, “when we started getting nervous about FINRA as an SRO,” there was appropriate concern among advisors that “a rules-based regulator would be a big burden, especially for some small advisors,” and reiterated that “having 400 more rules will not be as friendly to the client.”

Then there’s the question of how advisors will market themselves. “Advisors are focused on branding—how to differentiate themselves,” he said, pointing out that “as they grow, they become more like each other, so how do they tell their story differently?” As for the fiduciary issue, he said there’s an “altruistic” benefit to clients, but worries that embracing a fiduciary duty is “going away as a differentiator,” especially if any SEC fiduciary standard doesn’t include disclosures that brokers are “still making a lot of money from proprietary products or IPOs.”

What about Schwab’s competition? “We’re starting to see that our share of wallet is growing much faster—partly because it’s operationally efficient, especially among larger advisory firms.” When Schwab Advisor Services does “see assets going away, it’s because [competing custodians] are offering something like a referral program or iRebal.” What will be “critical for our success in the next five to 10 years,” he said, is Schwab’s business consultancy efforts, such as its Insights to Action program, helping advisor clients “think about their practices, their people, their transitions and their clients’ transitions.”

At Schwab, Clark said, “we’re pretty paranoid about staying ahead of the curve.”

(Check out Investment Advisor’s full IA 25 for 2014 list on ThinkAdvisor.)


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