The latest Advisor Outlook Study has been released by Schwab Advisor Services, finding independent registered investment advisers (RIAs) are widely optimistic about sales prospects for the coming year.
Half of all advisers who participated in the annual study expect their firms to grow between 5% and 10% in 2016, with 32% anticipating growth between 11% and 20%. Another 15% of RIAs project even stronger growth rates over 20%, Schwab says.
Bernie Clark, executive vice president and head of Schwab Advisor Services, notes RIA optimism around firm growth has been strong and getting stronger in the last several years, with clients in 2015 “needing the lowest levels of reassurance since 2007, even in the face of intense market and geopolitical volatility.”
Clark calls the current RIA growth rate and the 2016 projections “incredible.” He highlights the fact that two-thirds of advisers predict the S&P 500 will increase in the next six months as another positive sign for the industry. However, while confidence in sales and the markets are high, advisers strongly agree that there will be continued market volatility and that geopolitics and global markets will adversely influence U.S. markets over the next six months.
“Looking back over the past six months, nearly all advisers (92%) reported the need to provide reassurance to at least some clients that their investment goals will be met,” Schwab’s report explains, “though it was generally a small number of clients, 18% on average—and represented the lowest level since wave two of this study in the fall of 2007.”
NEXT: Technology remains a dominant force
Schwab finds digital automation technology continues to grow in influence and importance at RIA firms, with 61% of advisers suggesting changes in technology are having “a greater impact on their firms than changes in client demographics when they are asked about the two together.” Selecting for larger firms with $500 million or more in assets the effect is even more pronounced, with 67% of advisers suggesting technology change is more influential right now than client demographic change.
Unsurprisingly, Schwab says the majority of advisers see technology adoption as central to their operational strategy in the years ahead, “allowing them to spend more time with clients and achieve firm growth.” When examining the shift in staff time allocation over the past five years, Schwab finds firms with projected growth rates of 5% or more report staff are spending more time implementing and learning to use new technology. Another main theme: staff are also spending more time interacting with clients and less time doing manual data entry or generating reports. The latter are two tasks particularly suited for outsourcing and automation, Schwab concludes.
“Technology is no longer simply equated to productivity or back-office data management,” Clark adds. “When envisioned and implemented strategically, technology is a growth enabler.”
Schwab explains that, with respect to automated investing, among advisers who would recommend automated investing, the majority would recommend it for clients who don’t meet the firm’s asset minimums (70%) or clients with relatively simple investment needs (67%). “Half of advisers (54%) would recommend automated investing for children of existing clients or as a strategy to capture inter-generational wealth (24%),” the report continues. “More than one third (37%) of advisers consider that up to 10% of their new client assets in the next year are likely to be appropriate for automated investment management, and an additional 21% say more than 10% of new assets are likely to be suitable.”
NEXT: Of course, challenges remain
The Schwab report warns that RIA optimism will go “head-to-head with challenges and change” in 2016.
Many advisers (41%) cited a more complex compliance environment as a hurdle to growth, while others cited technology integration (39%), establishing internal processes (37%), or balancing client services needs with business operational needs (37%).
“This is a growing, maturing industry so the changes and challenges advisers face are good ones to have,” Clark says. “Awareness of the underlying opportunities is also key, as is responding strategically and proactively. Doing so can enable RIA firms to continue to thrive and forge new best practices as the industry and their firms become increasingly sophisticated.”
Schwab concludes advisers are experiencing change inside and outside their firms. “Talent management (19%), an aging client base (18%), and technology (18%) are cited as the top three factors having the biggest impact inside RIA firms,” the report says, “followed closely by next generation firm leadership (15%). External forces such as the need for differentiation from other advice firms (22%) and regulation (21%) are reported as having the greatest impact outside firms.”
In another positive sign, nearly three out of four firms (74%) have identified the next generation of leaders and are “actively preparing them to take the helm in the future by giving them hands-on exposure to business operations, technology and new client development learning experiences.”
The Independent Advisor Outlook Study, conducted for Schwab Advisor Services by Koski Research, has a 3.65% margin of error. All data is self-reported by study participants and is not otherwise validated.