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Schwab: Advisors Upbeat on Growth but See 'Huge Threats,' Too

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Despite the ongoing COVID-19 pandemic and other challenges, Schwab executives and three independent advisors who custody with the firm gave a positive take on the current state of the industry and a mostly upbeat growth forecast during a call with reporters Friday before the Schwab Impact conference.

Their takes also were reflected in the results from Schwab’s latest Independent Advisor Outlook Study released Tuesday, the first day of the the firm’s annual conference, which is being held online this year.

The vast majority of the 1,347 independent advisors polled who custody with Schwab (91%) say they expect the RIA industry will continue to grow, with 58% of them projecting slow and steady growth and 33% projecting growth at a higher rate than the market, according to the study, based on an online survey conducted Aug. 3-16.

Meanwhile, 82% of the firms polled said they anticipated growth in net new assets over the next year, with organic growth likely to be the key driver by most of them (93%). However, the growth forecast for many of them is down from original projections, according to Schwab, and those expecting growth declined from 94% of firms in the 2019 study.

Fifty percent of net new assets are expected to come from new-to-firm clients and an additional 43% from existing clients, according to the study.

‘You Are All National Firms Now’

The last decade “has been a phenomenal period of growth for the independent” advisor and “it continues to grow,” Bernie Clark, head of Schwab Advisor Services, told reporters Friday.

Despite challenges brought on by the pandemic, advisors “remain very optimistic because they’re smart, they have loyal clients and they know that their clients need more help” because it is, after all, a “confusing time,” he said.

Their optimism, however, is tempered a bit more this year because we are in a “period of uncertainty” that includes the pandemic, a high unemployment rate and other factors, he said. Because of these challenges, however, RIAs are “needed greatly” now and their business model “shines,” Clark said.

Meanwhile, “there’s still a far larger number of assets outside of this profession than inside it,” he explained. “We’ve got a $5 trillion share of what can be a $20 trillion market. There’s a lot of opportunity to help clients grow even more effectively,” and digital workflows are making it easier.

Clark also told advisors that, as a result of the shift to remote work amid the pandemic, “you are all national firms now.”

The executive added: “There really are no boundaries. The conversation about going national has happened and it’s called virtual and your clients are everywhere and some that were physically local have moved themselves and relocated and they’re now representing other states in your portfolio.”

There are, however, potential barriers to growth that may impede the optimism of advisors, according to Rob Farmer, managing director of corporate communications at Schwab.

Biggest Threats

The biggest threats to RIAs are “discount brokers, robo-advisors, Robinhood, [and] the big-name firms that solicit clients from their 401(k)s before the client really knows and the next thing they know they’re wrapped up in an annuity for life,” according to Priscilla Gilbert, president and founder of RIA CenterPoint Financial in Montpelier, Vermont.

“These are all huge threats to our business — especially with millennials,” she told reporters during the Friday call. The services provided by CenterPoint are not as valuable to young investors, who just need to start saving and don’t need the full extent of her firm’s services, she noted, adding: “I don’t yet have a solution, but I’m working in it.”

Operational burdens also present “enormous challenges” and include technology, compliance and cybersecurity, Gilbert said.

CenterPoint clients’ main concerns now include the election and the stock market, she noted. Specifically, they are worried about the federal debt and taxes. Many clients are struggling between their “social values and their personal financial goals,” she added.

Handling Uncertainty

Noting the world is becoming more complex and there is so much information and uncertainty now, Dave Hill, president and managing director of Sonata Capital in Seattle, Washington, said clients are having difficulty “digesting all of that.”

Sonata and its clients, meanwhile, are still grappling with how to react to this new, remote environment. The firm’s advisors have long spent a lot of time meeting face-to-face with clients and that is just not possible now due to the pandemic, he said.

At the same time, many of his firm’s clients are new to technology and are not that comfortable with video tech, so Sonata has gone through a big educational process with clients, Hill said.

Another challenge has been the “low interest rate environment” that is impacting retirement planning, he noted.

“Helping clients sleep at night and maybe even dream” is an important role for his firm and “many of our clients aren’t dreaming as much anymore; some of them aren’t sleeping as well either” due to all the uncertainty, Hill told reporters.

Clients Seeking Expertise

Clients are “really looking for [advisors’] expertise right now because they’ve experienced a lot of trauma over the last six to nine months, and they need that comfort and consistency” advisors can provide, according to Stacey McKinnon, chief operating officer at Morton Capital in Calabasas, California.

“Something that’s top of mind for us right now,” meanwhile, is the hybrid environment expected in the future for advisors and other team members, she said, noting that even after the pandemic ends, remote working will likely continue to some degree.

The top issue now on the minds of her firm’s clients is whether their families will be OK in terms of health and finances, McKinnon said: “The markets are a huge question. The election is a huge question on their minds. Will they run out of money? What if we experience volatility again?”


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