The latest Schwab Independent Advisor Outlook Study (IAOS) found RIAs reporting growth in new clients, compensation and wallet share since the bull market began.
A whopping 93% of the 629 RIAs surveyed believe the industry is on a “continued growth trajectory,” while 53% said the industry will continue to grow at a faster rate than the market. Respondents reported high employee retention rates, hiring plans and technology investments to maintain their growth, with their top talent acquisition priority being adding staff in operational and support roles.
While other studies found that only a minority of advisors have a formal succession plan, 30% of IAOS respondents reported that they offer equity ownership opportunities to their staff, and nearly half (49%) said they have a documented path to ownership.
Bernie Clark, head of Schwab Advisor Services (SAS), said in an interview that the findings reflect the progression of RIA firms from “being entrepreneurs with practices” into real “enterprises — so they need a delineation of responsibilities,” including, for example, chief operating officers and chief compliance officers, responding not just to mandated regulation (CCOs) but also to their size.
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“They’re trying to make sure they’re scaling” those enterprises, Clark said, focusing on adding human capital in areas like operations but also actual capital in technology, allowing them to “be more efficient exponentially.”
Despite that good news and optimism, Clark said these same advisors should beware of complacency. Yes, “advisors have been wildly successful,” but across industries older-model firms and even newer-model firms are either “evolving or dying.” Like traditional but successful firms, advisors “can become outdated instantly,” turning into “new traditional firms.”
He urged advisors to participate in “the next wave of technology.” While “we know the wirehouses will never go away,” Clark said “their allure is not what it was. Advisors need to be the next new model,” not the older “traditional.” In the near future, he said “even Uber will look like an old model.” Bringing in the next generation of advisors will help take the industry “in another direction,” Clark said, and using automated investment technologies (aka robo-advisors) like Schwab’s Institutional Intelligent Portfolios (released earlier this week) “is just the beginning.”