Independent financial advisors are optimistic about their business but increasingly feel the need to stand out from the competition by offering more services, according to Schwab’s latest Independent Advisor Outlook Study. Moreover, many are already providing those services, such as tax planning and health care planning, for no additional cost.
“Forty-four percent of advisors are providing more services to clients without charging for them and two-fifths have been putting more time into each without an increase in fees,” according to the report, which surveyed a little more than 900 advisors, RIAs.
“It’s fee pressure but instead of a reduction [in fees] they’re doing more for the same fee,” said Bernie Clark, head of Schwab Advisor Services, on a conference call with reporters. “So scale is critically important.”
Clark said advisor fees average 0.75% to 0.80% “all in,” though some advisors charge a discrete fee for planning alone.
Chuck Bean, the founder and CEO of Heritage Financial in Westwood, Massachusetts, who was also on the call, said his firm has lowered its management fee a few times over the years and added “holistic services” but couldn’t do that if not for technological advances.
Seventy-six percent of advisors think technology will help them stay ahead of most competitors, but 24% said they’re investing more in technology without seeing enough increase in scale to offset that expense.
Investment costs are another major consideration for advisors.
Sixty-five percent of advisors said they seek the lowest cost for the product that best fits a client’s needs, while 28% said they look for the best fit for a client regardless of cost and 7% said they always seek the lowest cost option.
“Costs are front and center in the discussion about the DOL fiduciary rule,” said Pat Williams, CEO of Silicon Private Wealth, based in Fremont, California, also on the call. “Implementation requires the broadest choice of fee-sensitive solutions.”
Although RIAs have traditionally served as fiduciaries for their clients, the fiduciary rule provides them a chance to reinforce their approach of putting clients’ interests first, ahead of their own, said Williams. “It invites a discussion that many of us welcome … It allows us to describe a differentiated approach.”
But the rule also creates confusion among clients because while RIAs serve as fiduciaries for all of their clients’ accounts, other advisors will be required to act as fiduciaries for retirement accounts only.
“The SEC has to move quickly to bridge this gap,” said Clark. “It becomes confusing now.”
In the meantime, 44% of advisors said they expect that new regulatory requirements will lead to increased investments in employee training while just under 30% think they will result in increased investments in marketing and vendor management.
Beyond the fiduciary rule is the broader political environment in the U.S. and that worries both advisors and clients, according to the Schwab report. Almost half the advisors surveyed said that they were concerned ”a lot” about that, while 68% said their clients were.
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