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Schwab’s Bettinger, Clark: RIAs Must Evolve; Robos in ‘Top of the First’

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Something unusual happened at the Schwab Impact opening session on Wednesday in Denver: an actual advisor kicked things off.

Veteran financial planner and industry leader Elaine Bedel of Bedel Financial Consulting in Indianapolis welcomed more than 2,000 of her peers to the 23rd annual Schwab RIA conference by sounding a theme echoed by Schwab’s Walt Bettinger and Bernie Clark: the RIA profession is healthy and growing, and its continuing evolution can provide great benefits to advisors’ clients.

Another somewhat unusual event occurred following Clark’s opening comments; he sat down for 30 minutes with Schwab CEO Bettinger, who addressed not just the generic issues of running Schwab (SCHW), but the strategy behind Schwab’s recently announced plan to offer Intelligent Portfolios — its digital advice offering for consumers and RIAs — in the first quarter of 2015.

Clark, head of Schwab Advisor Services, began by posing the question of whether technology changes will make RIAs obsolete. “I strongly disagree,” he said, “you’ll be the disruptors” in the industry, though he warned that the “model needs to evolve” to more efficiently and effectively serve what Schwab calls “Generation Now,” investors age 30 to 45.

While Clark noted that “67% of your clients are retired or within 10 years of retirement,” making advisors’ focus on boomers understandable, he noted that there will be $16 trillion in wealth transfers from boomers by 2030. “Generation Now already has $3.5 trillion in assets,” Clark reported. 

This younger generation “grew up in troubling times,” he said, though “so did you. They’re insecure and focus on short-term needs.” More importantly for advisors, however, Clark said that “they don’t know who you are,” and instead “confuse you with the Wall Street they see in the movies.”

So the challenge for advisors with this next generation of potential clients is to clarify, differentiate and then articulate that clarified differentiator, Clark urged, and to “leverage the Gen Now” members of your staff to “get in front of Gen Now.”

That generation “does its research online, so you need a strong social media” presence, he said. Moreover, since members of Gen Now want advisors “who look like themselves,” he urged advisors and the industry in general to embrace diversity in terms of gender and ethnicity in addition to age diversity.

On Nov. 4, Schwab announced a program called RIA Talent Advantage, which includes a new LinkedIn community, designed to be a hub where RIA firm principals and employees can connect with each other to “discuss, share and learn strategies for building a culture of inclusion in their firms.”

In a separate interview after the opening session, Clark lauded Neesha Hathi and Mary Rosai of Schwab for their diversity leadership at the firm, saying their intent is not to drive headline awareness only, but to “create actionable items” that advisors can use to increase diversity at their firms.

Clark then introduced CEO Bettinger, who usually takes less of a public role at Impact conferences. “Our balance sheet is strong,” as are Schwab’s profits, Bettinger began, while “our competitive position is outstanding.”  That’s the case despite his “frustration” with the continued low-interest-rate environment, which he said has kept Schwab from investing in “some places we haven’t been able to.”

Thanking the advisors multiple times for their business, Bettinger said Schwab the company has total assets of $2.5 trillion, and attracted $100 billion in net new assets this year, with the RIA channel responsible for half that amount. The Schwab Advisor Network referral program produced “$5 billion in closed referral business this year,” he reported, as he morphed into a discussion of Schwab’s retail business. “In the future,” he said, “expect our branch footprint to grow” into geographic areas of the country where Schwab’s branch network is weak, naming as likely future branch sites Charlotte, North Carolina, and San Antonio, Texas.

Then Bettinger began his discussion of Schwab Intelligent Portfolios, which the company announced just last week will roll out in the first quarter of 2015, with a version for advisors to follow shortly thereafter.

“This is a fiduciary-based offering,” Bettinger said, using low-cost ETFs. It is designed for the buy-and-hold investor. It will be paperless, he said, built for mobile device use and not built on There will be no advisor fee or commission, and “our revenue will come from” the ETF providers and the cash holdings in the portfolios.

The advisor version of Intelligent Portfolios will be “white labeled” and “use the same engine” as the retail version. Advisors will be able to adjust the asset allocation of those portfolios and choose specific ETFs for them. Since the portfolios of end clients who use the advisor version will be custodied at Schwab, it will be easy for advisors to manage and report on those portfolios.

There will also be several different “price points” for the service, all the way down to zero, he said.

Baltimore Orioles fan Bettinger (subject of a recent Barron’s cover story) said that digital advice is “in the bottom of the first inning, with one out.” Bettinger characterized the existing robo-advisors as technology companies, and expressed amazement that a  such companies “would charge basis points” for their technology.

Obliquely but directly addressing some advisors’ concerns that robo-advisors like Intelligent Portfolios constitute a competitive threat to their existing business model, Bettinger asked and ansered the question of what the growth prospects were for Intelligent Portfolios. “It could be bigger in retail or in the advisor” space, he said.

Clark said growth will depend on end clients’ adoption, but warned advisors that “if the next generation wants it, you’ll want to offer it.”

Bettinger expanded on Clark’s statement by noting that “we want to give choices,” and that Schwab’s own research showed that half of advisors say they want to have an online advice offering, while the other half said they weren’t interested.

Speaking more broadly of the trend in a private interview later Wednesday, when asked whether robo-advisors would put fee pressure on advisors, Bettinger said “it will happen among asset allocators.”

With digital advice providers having only attracted “$5 billion in AUM in a raging bull market,” Bettinger wondered “what happens when there’s a 40%” decline in an online portfolio?”

Clark said that an advisor version of Intelligent Portfolios would be attractive to a wide swath of the advisor community. Adoption of such a complementary advice offering would, he said, have “nothing to do with the size of an advisory firm.”

Bettinger said Schwab is spending “massive dollars” on developing Intelligent Portfolios, but it’s well worth it, comparing it to Schwab’s Index Advantage platform for including ETFs in 401(k) plans.

Not only is the robo-platform important now, “it’s a play for 10 years from now,” he said.

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