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Schwab: Advisors ‘Bullish’ on Growth, but Barriers Remain for RIAs

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What You Need to Know

  • Innovation played a major role in RIA sector growth and most advisors see opportunities for continued innovation.
  • RIAs continued to cite new forms of competition as the top barrier to growth.
  • A major challenge for RIA firms is finding the right talent.

Despite the ongoing pandemic and other challenges, Charles Schwab executives and two independent advisors who custody with the firm gave a mostly upbeat growth forecast for the RIA sector during a call with reporters Monday in which they discussed key findings of Schwab’s latest Independent Advisor Outlook Study.

“Advisors are very bullish about the industry’s prospects for continued growth,” more so than they were in August 2020, according to the study, released Monday. During the pandemic, innovation played a major role in the industry growth and most advisors see opportunities for continued innovation, it also found.

Advisors expect changes from 2020 to have a continued impact on their businesses, according to the study. For example, remote work is providing them with new opportunities when it comes to connecting with clients and also recruiting talent. RIA firms are becoming more flexible and adaptive to change and establishing new workflows.

“Remote work is going to be critical to making sure that people can find that appropriate balance and the talent coming out of the universities,” according to Bernie Clark, head of Schwab Advisor Services.

The study also found that “investors’ preference for the fiduciary model is becoming stronger and stronger,” he said, noting this is the 14th year of the study and the first time that TD Ameritrade advisors were polled for it as part of the merger between TD and Schwab. That transaction was finalized in October.

Forty-eight percent of responding advisors said they expected the RIA industry will grow at a slow and steady rate, down from 58% last year.

But 47% said the RIA industry has not fully matured and will continue to grow at a higher rate than the market, up from 33%. Only 4% said they believed the RIA sector hit its peak growth and will now stabilize and remain flat other than market-based fluctuations in assets, down from 7% last year. And only 1% said the RIA industry was on the decline, down from 2%.

New forms of competition continued to be cited as the top barrier of growth for the RIA sector by respondents. Twenty-seven percent cited that, up from 23% last year. At No. 2 was the cost of doing business, cited by 15% of advisors, up from 13%. Close behind was the difficulty in scaling the current service model to serve more clients (14%, up from 11%). An inability to differentiate from rivals was cited by 12%, down from 16%, and a lack of talent was cited by 10%, up from 8%.

The study was conducted online for Schwab by Logica Research from April 13 through April 26. Respondents included 953 independent investment advisors who custody assets with Schwab, representing a total of $400 billion in assets under management, Schwab said.

Innovation and Tech

The pandemic forced advisors to be more innovative, according to Jalina Kerr, senior vice president of client experience at Schwab Advisor Services, yet only one in five firms polled described themselves as innovative, she noted.

Advisors need to look to fintech and external industries to “expand … client experiences and flexibilities,” she said, adding there are also “digitization opportunities that will take us into new wealth.”

Although COVID-19 accelerated technology investment in the RIA sector, the “pace of investing” in new tech is slowing, according to the Schwab study. Only 57% of those polled this time said they were investing in new tech this year, down from 71% in 2020.

It was just “speculation” on his part, but Clark told ThinkAdvisor during the Q&A he believed “2020 just represented such an uptick in spending on technology, there’s a bit of an absorption period that we’re seeing in 2021 as firms are starting to incorporate that technology into their platforms.”

He doesn’t think the decline in tech spending represents a trend that will continue for long, he said. The pandemic “greatly accelerated digitization” and “took years off the curve,” he noted, adding Schwab is seeing a “phenomenal” level of tech adoption.

“Firms who adopt quickly are going to become more efficient,” he said. “They’re going to serve more assets with fewer dollars … and they are going to be the winners in the future.”

Two Takes From Independent RIAs

The results at Willow Creek Wealth Management in Sebastopol, California, an RIA that custodies with Schwab, were in line with what the study showed of the overall RIA sector, according to Timothy M. Admire, CEO, president and managing partner of Willow Creek. However, while its results were “a little bit slow” last year, results “really picked up strong from the beginning of 2021,” he said.

“For us, a lot of that growth still does continue to come from client referrals,” Admire noted. But his firm is also “starting to see business come from other sources,” including from its website and social media, he said, calling that a “positive sign to see.”

Meanwhile, an increasing number of people are becoming aware of the RIA sector, what it does and what makes RIAs unique, Admire said.

On the negative side, “talent has just been really tough to find for us and I know it is for everybody industrywide,” Admire said. “There’s just not enough people coming into this industry to meet the demand for the talent that’s out there.”

What stands to help overcome that challenge is that remote work is now “much more acceptable,” so his firm can “cast a bit of a wider net than we could before,” Admire explained. However, the “downside is that everyone else is able to cast a wider net as well so there’s more competition there for that talent,” he conceded.

Private Vista, an RIA that custodies with Schwab and has offices in Chicago and Oak Brook, Illinois, is moving to a hybrid remote-work model, in its case with an average of three days a week in the office, according to Jim Weil, Private Vista managing partner.

Integration Update

Providing another Schwab-TD Ameritrade merger update, Clark said: “We’ve already combined our technology teams so they’re working very, very closely together. Our leadership teams have been combined; they’re working closely together. Our control teams have been combined; they’re working closely together. And our training teams. All those things have already happened.”

During the Q&A that followed, he said: “We have just materially accomplished the synergies that we needed to in the advisor business.” From the start, it has not been cutting “client-facing individuals” from its workforce, he noted. After seeing the strong trading volume from December through February, Schwab continues to expect to have a need for all the client-facing staff it has, he said.

Job cuts have been “where there’s duplication of roles,” he noted, adding: “That is not yet over.” He didn’t specify how many more cuts there may be or when they will happen.

In May, Schwab eliminated more jobs at TD Ameritrade, including at least three of its executives, as part of the ongoing integration of the two firms. However, a report from WealthManagement, citing a source close to the company, said about 50 employees were laid off.

Earlier this year, Schwab disclosed that it slashed about 200 jobs as part of its ongoing integration with TD Ameritrade. These job cuts were in addition to the more than 1,000 jobs the company already said it was eliminating across the two firms following the finalization of the $22 billion deal in November.

Pictured: Bernie Clark, head of Schwab Advisor Services. (Photographer: Christopher Dilts/Bloomberg)