Advisors are optimistic about their businesses while they are pessimistic about the returns that the stock markets will supply their clients. According to Schwab Advisor Services’ 19th semiannual Independent Advisor Outlook Study (IAOS), only 56% of respondents expect the S&P 500 to increase over the next six months, a four-year low in the percent of advisors feeling that way. As a point of reference, the smallest percentage bearish on the S&P was recorded by the survey in January 2008, when only 46% of respondents expected the S&P to increase over the next six months.

However, 73% of those surveyed expect their firms to grow over the next five years, despite a majority (57%) who say meeting client goals will be either “somewhat” or “very” difficult in the current investing environment and 66% who expect to see increased competition in securing new assets. The last time the survey asked about the difficulty of meeting client goals, in May 2014, only 45% of respondents named that goal difficult.

Of the respondents, 65% agreed that the need to differentiate themselves is greater than ever.

When asked about the competitive impact of the Department of Labor’s fiduciary rule, 36% of respondents said it will likely increase RIAs’ competition, while 35% said the rule will make it harder to differentiate their firms from the wirehouses. Sixty-five percent said they expected their compliance costs to increase because of the rule while 62% said they expected to change the way they communicate with clients about “their retirement investments.”

The semiannual survey of 930 advisors was conducted online by Koski Research between April 19 and May 1. The respondents were employed by independent advisory firms that custody with Schwab. 

Bernie Clark, the Schwab executive vice president and head of Schwab Advisor Services, said in a speech June 26, when Schwab announced a new national advertising campaign, that Schwab research showed “the need to break through investor confusion by educating investors – as well as legislators, regulators and the next generation of advisor talent – about the differentiators of independent financial advice.”

That ad campaign, Clark said in a separate interview with ThinkAdvisor, and other steps being taken by Schwab were in response to consumer research that showed investors “don’t understand what an RIA is; they think it’s a firm, not a person.” To counteract that misunderstanding, “we did it with the faces of advisors” in those ads, and included words like “trust” and “fiduciary,” he said, intending to help differentiate independent advisors. 

CEO Walt Bettinger said in the same interview that even if “the appearance of differentiation diminishes, it’s only in the portfolio” building process. “RIAs do so much more,” he said. “The counseling, the advising, the planning, the education — it’s all those other things that are unique,” he said, and “much harder to build into an algorithm.” 

As for the survey’s other key findings, when asked about their top concerns, and their clients’, the responding advisors listed:

A note to the U.S. presidential candidates: Don’t bother advertising to advisors; only 21% considered the presidential election a top concern. That’s below geopolitical concerns (25%) and slightly above regulatory changes (19%).

When it comes to succession planning, 60% of firms reported they’ve already extended equity ownership beyond their founding principals or plan to do so in the future; 62% of respondents self identified as ‘principals’ of their RIA firms. In the interview, Clark said that “we know the statistics are very good on succession plans,” but that firm principals “are doing it on their own terms.”

However, many of those succession plans may be “documented, but are not executable.” Many successful principals of RIA firms are not just “looking to exit,” Clark said, since he sees many of those successful advisors “giving back” to the profession, mentioning in particular Deena Katz, Harold Evensky and Elissa Buie. 

When asked about the provenance of their current assets under management, respondents said 37% were “mature” assets; 25% were “aging” assets, and 23% were “mid-lifecycle” assets, which makes sense in light of the respondents’ reporting their average client’s age was 60 years old.

Perhaps because respondents’ average age was 51, 91% of advisors said they were most prepared to meet the needs of mature assets and 88% felt the same way about aging and mid-lifecycle assets. However, respondents said they were “less prepared to handle younger clients,” and that even five years into the future, assets from younger client assets would comprise only 12% of their AUM.

Source: Schwab Advisor Services

— Check out Is There a Winning Personality Type for Top Advisors? on ThinkAdvisor.

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