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RIAs Rarin’ to Compete in 2015: TDAI Survey

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Registered investment advisors are coming off another year of double-digit growth in clients, revenue and assets, and they have a largely positive outlook for the overall U.S. economy, according a survey by TD Ameritrade Institutional.

The survey was released Thursday, as TDAI kicked off its national RIA conference, National LINC, in San Diego.

But while they are thriving, RIAs are feeling the heat competition from all sides — fee-based brokers, do-it-yourself investors, robo-advisors and other RIAs — is intensifying.

Sixty-three percent of RIAs in the survey added clients over the previous six months, at an average growth rate of 14%. About two-thirds saw an increase in revenue, while assets under management increased by 17%.

“The steady movement of assets into the independent wealth management channel shows no signs of slowing,” TD Ameritrade Institutional president Tom Nally said in a statement.

“RIA firms that have the ability to scale service and add capacity will be well-positioned to take advantage of the growth opportunity in front of them.”

Maritz conducted a telephone survey in the fourth quarter on behalf of TDAI of 301 independent RIAs with firm assets under management averaging $232 million.

Recent market volatility and recent disruptive geopolitical events have somewhat dampened advisors’ previous enthusiasm, the survey found. Half said they were optimistic heading into 2015, but 17% expressed pessimism — three times as many as at the top of 2014.

Even so, survey participants were generally bullish on the U.S. financial markets.

U.S. equities represented 53% of their clients’ assets, a 23 percentage point increase from 2010, while international holdings have dropped by two-thirds to 9% of client assets today.

Besides stocks, a quarter of client assets were allocated to fixed income, 9% to cash and the remainder to other asset classes.

Advisors in the survey were mainly concerned about the effect of regulatory changes on their firms, followed by the challenges of managing risk.

In fact, they perceived additional burdens and costs associated with such changes as the biggest competitive threat to their businesses.

Competition: Usual and Not-So-Usual Suspects

Fifty-seven percent of RIAs’ new clients in the past six months were dissatisfied customers from full-commission brokers, according to the survey.

However, when seeking new business, advisors increasingly found themselves competing with one another, as well as with others with alternative advisory models.

Notably, advisors were winning new clients from banks and other RIAs by at least twice the rate they did in 2012.

The survey found that heightened competition from other sources was a potential roadblock to RIA growth.

Advisors saw broker-dealers that promote fee-based services as a top threat, along with emerging national-branded RIA firms and do-it-yourself online investing offerings.

RIAs in the survey were also keeping an eye on the rise of online advisory firms, better known as robo-advisors. Yet they generally considered robos an issue for the broader industry, not for themselves.

Thirty-eight percent of advisors who were aware of robo-advisors said they were concerned about the threat these posed to today’s RIA industry, compared with 18% who were concerned about robos’ effect on their own firms. The Technology Game

Client referrals continued to be advisors’ preferred source of new business, but they were also bolstering technology use to fuel growth.

Deploying technology that could accommodate increased scale was their top strategic firm growth initiative, followed by systematizing client service and service delivery.

Three-quarters of respondents said they would build out their infrastructure to support growth, primarily with technology investments.

According to the survey, 32% of RIAs’ technology dollars will most likely be spent on performance reporting tools, 31% on financial planning tools and 29% on customer relationship management systems.

When considering more advanced technology services and applications, 64% of advisors expressed interest in adding e-signature capabilities, 47% in account aggregation and 45% in cloud-based solutions.

But advisors realized that integration of tech tools and applications was critical. Fifty-six percent said they wanted to do a better job at integrating technology in their firms. Most recognized that better technology integration could improve workflows and productivity and increase their capacity to support more clients.

In a surprise finding, according to the statement, half of RIAs said they did not use social media for client communications today. For the advisors who did, 74% said LinkedIn was their channel of choice, followed by 48% who preferred Facebook.

In Transition

The survey showed that 52% of RIAs were 55 or older, and 40% were within a decade of retirement. Still, 45% were in their prime earning years, ages 34 to 54.

Thirty-nine percent of advisors surveyed said they had not done any succession planning, but many others were executing on firm growth plans even as they thought about their own exit strategies from the business.

The most common succession strategy, named by 36% of respondents, was to turn the firm over to the next generation of leaders already in place, and 25% were focused on hiring and grooming young talent to do this in the future.

Thirty-two percent said they expected to sell the firm to another RIA, and 24% were looking to merge with a financial buyer or aggregator.