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Advisors Are (Mostly) Upbeat About the Future: Schwab

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Schwab executives and independent advisors provided a positive take on the current state of the industry and a mostly upbeat forecast for it as well Tuesday during a media panel at the Schwab Impact conference at the San Diego Convention Center.

“Advisors continue to be optimistic about growth,” according to results from Schwab’s latest Independent Advisor Outlook Study that was released Tuesday at Impact, said Rob Farmer, managing director of corporate communications at Schwab.

The vast majority of advisors (92%) expect the industry will continue to grow and more than a third (37%) believe it will grow at a higher rate than the market, according to the study.

The study consisted of an online survey, conducted Sept. 9-23, of 942 independent investment advisors who custody assets with Schwab, representing a total of $366 billion in assets under management, the firm said.

While 55% predicted the RIA industry will grow at a slow and steady rate, 37% said the sector hasn’t fully matured yet and will continue to grow at a higher rate than the market overall.

Meanwhile, 94% of firms expect growth in net new assets over the next year, with organic growth expected to be the key driver by most of them. Fifty-one percent of net new assets are expected to come from new-to-firm clients and an additional 39% from existing clients, according to the study.

There’s a wide range of measurements that “advisors are knocking it out of the park on,” Bernie Clark, executive vice president and head of Schwab Advisor Services, told reporters. “In reality, advisors don’t attrite a whole lot of assets. They retain those relationships,” he said, adding much of the growth “they’re seeing is happening organically and it’s coming through referral.” And many of the clients who are referred to them tend to continue using the same advisors, he noted.

Despite the mostly upbeat forecast, Clark conceded there are challenges on the horizon for advisors. For starters, “there’s some worry now about the market and it has been pretty volatile since really the fourth quarter of last year,” he pointed out. The concern is “probably a little bit more [on] the client side … than the advisor side,” he noted. “But there’s still a long game, and so they’re not panicking” too much about the situation, he said.

However, a “slight generational divide is starting to be created” in which some of the younger clients are “a little bit more anxious than the boomers even at this point,” he said, noting members of the most recent generations, including Generation X and millennials, tend to be “a little more careful” than older clients when they start investing.

Clark also had some cautious advice for advisors who may be looking to join the growing M&A field, saying: “When you start taking your eye off organic growth or when you start focusing on the inorganic M&A, one side tends to slip a little bit.” Therefore, he said: “It’s incredibly important to try and maintain your organic growth.” But he predicted the number of M&As will continue to rise, especially among the larger firms.

A quarter of advisors in the study cited new forms of competition as a barrier to growth, making it the top barrier, while 22% pointed to the cost of doing business and 20% the ability to differentiate from rivals.

Meanwhile, 36% of the advisors surveyed cited technology as a change they were considering for 2020. That made technology the top expected area of change for advisors next year, ahead of operations/workflow (32%) and client acquisition model (24%). Twenty-one percent weren’t considering making any changes in 2020.

The top reason advisors cited for wanting to implement technology was to achieve faster service, Andrew Salesky, senior vice president of Digital Advisor Solutions at Schwab, pointed out. Faster service was cited as a benefit of the technology by 72% of advisors, ahead of reducing errors through the elimination of paper and other means (58%) and the ability it gave employees to focus on more complicated tasks (51%).

On the other hand, client resistance was the main barrier to advisors implementing new technology for client service, according to the study. Client resistance was cited by 42% as a barrier, ahead of cost of implementing it relative to time or money saved (29%) and staff resistance to adopting it (17%).

“We see that ourselves a little bit at Charles Schwab as well,” Clark said of the latter. Staff members will often be reluctant to embrace new technology because they know how to use what they have, including the “workarounds,” even if they concede the new tech is better, he said.

“The technology that makes it easier for our clients to do business with us is crucial,” Anthony Christensen, managing partner of Access Wealth Management in Louisville, Kentucky, told attendees. “Change is hard,” but everybody has to come to the understanding that implementing technology, “a lot of times, in the short term…may slow you down,” but it’s important to focus on the long-term benefits that technology may provide, he said.

Riverview Capital Management in Chattanooga, Tennessee, meanwhile, started adopting Schwab technology offerings, Patrick Farnsley, its investment director, noted. For example, “in the last year or so, we signed up” for the Schwab Advisor Portfolio Connect portfolio management platform, he said, adding the technology is “great and Schwab’s given it to us for free so we’re tickled to death.” Riverview’s clients have been “very receptive” to the technology also, he said.

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