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Advisors are Bearish on Markets, Bullish on Their Own Growth

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Advisors expect markets will decline this year but are bullish on their firm’s growth trajectory over the next five years, according to Schwab’s latest Independent Advisor Outlook Study.

The “apparent disconnect is explained by advisors indicating they are diligently prepared,” according to the study, which surveyed 924 independent investment advisors who custody assets with Schwab.

Advisors are making strategic investments to promote sustained growth regardless of the market environment while doubling down on pursuing new clients and serving the ones they already have, the study notes.

They are streamlining operations, updating technology and increasing sales and marketing efforts to protect their businesses when the recession comes.

Over 90% plan to invest in existing and new technology this year in order to build scale, reduce manual work and free up employees to focus on high-value work.

Their average expected growth rate over the next five years: 41%, but 21% of small firms with $500 million or less in assets and 14% of large firms with more than half a billion in assets are expecting a growth rate nearly double that, 76%.

Advisors also expect an increasing preference of investors for the independent fiduciary model over the traditional wirehouse model will help boost growth while robust RIA platforms and technology systems make it easier for them to go independent.

Clearly, advisors surveyed by Schwab Advisor Services expect these investor preferences and the strategic moves their firms are taking will help them weather a downturn in the market and in the economy later on. They are worried about those possibilities.

Roughly two-thirds of advisors are concerned about a potential prolonged drop in major market indexes, and about half are concerned about a potential recession. Their clients are even more pessimistic.

Close to 80% of advisor clients said they were concerned about a market downturn and 63% worried about a recession. That could explain the survey’s finding that 82% of advisors reported having had to reassure a portion of their client base about achieving investment goals in the past six months.

Thirty percent of advisors said it would be difficult to reach their clients’ goals in the current difficult environment.

The survey also asked advisors about the barriers to growth in the years ahead. Leading the list: new forms of competition such as wirehouses creating RIA-like models within their firms, which is more likely now with the SEC’s new best interest standard. Consumer groups and the National North American Securities Administrators Association (NASAA) say the new standard will blur the line between those advisors who are fiduciaries, putting their clients’ interests before their own, and wirehouse brokers who can now attest to doing the same so long as they disclose any conflicts of interest.

Other barriers to growth noted by advisors in the survey: the cost of compliance and infrastructure and the ability to differentiate between RIAs.

— Check out 3 in 5 RIAs Don’t Have, or Don’t Enforce, Account Minimums: Survey on ThinkAdvisor.


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