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

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.