Registered investment advisors (RIAs) are a proud community—and they should be. Their assets are growing at nearly twice the rate that assets at other types of financial providers are, and the RIA industry has doubled in size over the past decade, according to Cerulli Associates, company reports, Charles Schwab Strategy estimates and marketwatch.com. Their unmatched commitment to their clients and their ability to act as financial navigators for clients has helped them stand out from the competition and generate tremendous success.
I am optimistic that RIAs are just getting started and that the potential for even greater success is enormous. But advisors are well aware that it won’t be an easy road. According to the Schwab Independent Advisor Outlook Study, released in October 2013, nearly three-quarters of advisors (71%) believe that five years from now there will be more competition for assets, and 60% say the need to differentiate from the crowd has become more important than ever.
That’s why I urge all advisors to step back from the demands of the present day and take stock of the bigger picture. Advisors who see tomorrow—who envision the future of their clients and firms and of the industry as a whole—while simultaneously preparing to act today will reap great rewards.
Taking action now that is informed by a vision of tomorrow will help advisors—who are the future makers and guardians of the RIA model—to move forward with confidence and clarity.
Change Is Coming
Emerging trends open up a world of possibilities for advisors. Just think about how surprising the last decade or so has been. Ten years ago, the smartest phone around was a PalmPilot, and the iPhone wouldn’t come out for another three years. Mark Zuckerberg was in his dorm room working on a homegrown Web site he would call Facebook. And text messaging was just taking off.
Today, clear trends are emerging that will create new possibilities for advisors to reimagine their businesses—from how they attract prospects to the ways they serve clients and groom their staff. These changes will have a huge impact on the RIA industry as a whole. And perhaps more important, advisors will have an opportunity to shape those changes.
Here’s what I see in my vision of tomorrow, as well as some ideas on how we can act today and work together to meet that future head on.
The Clients Of Tomorrow Are Here
Guess what? The next generation of clients—the ones everybody’s talking about—are already here. They are actually the “now” generation and they are ready to engage. They share many of the same goals of advisors’ existing clients: to look back on their lives and know they were successful, to provide for their families and to make a positive impact on the world.
That said, the next generation does differ in how they will work with their advisors to reach those goals:
• They’ll be harder to win over. The next wave of clients will have tremendous choice in seeking help with their investments. It will be challenging to capture their loyalty, and advisors will need to work harder to acquire these investors. The increased competition will be strong, and it will come fast. In fact, according to Schwab, 44% of advisors believe that next-generation clients will seek advice from multiple advisors.
• They’ll know more than advisors think they know, and will demand to be heard. Younger up-and-coming clients are voracious consumers of information and they have an unlimited supply of it at their fingertips—from social networks to blogs, e-newsletters to peer-review sites. More than half of advisors (52%) think these clients will be more involved in the investment decision-making process than their current clients, according to Schwab. Investors will want to validate every idea that catches their imagination with their advisors and they’ll bring their own strategies to those discussions.
• They will expect advisors to communicate with them on their terms. Information on demand is the norm for the next generation. The vast majority of advisors (86%) think that next generation clients will want service models that give them on-demand access, Schwab says. Clients will expect advisors to use smartphones, tablets and other real-time technology to interact with them on their schedules, to anticipate their needs and to drive them toward the best decisions using tools provided by their advisors. Such technology will support, not replace, the traditional advisor-client relationship expectations.
To attract and win next-generation investors, advisors need to be where those investors go to begin their decision-making process—online and onto social media channels. According to the Corporate Executive Board, an advisor to companies located in Arlington, Va., it is estimated that consumers complete 57% of their buying process using digital and social media channels before they engage directly with the companies from which they purchase. Advisors need a robust online footprint if they expect to be noticed in the first place by next-gen investors and to be part of the buying process early and often. Online marketing that creates awareness of advisors’ firms and the value of the RIA model will become increasingly important to business development. To address this, Schwab launched an online listing of RIA firms last year as a part of the “RIA Stands for You” campaign giving investors direct access to advisors.
While just 4% of advisors’ current new business comes from online marketing, 25% of advisors expect it to become their second-most-important source of new business (after referrals) by 2018, says the Schwab study. As their online presence increasingly becomes a primary presence, advisors will be able to expand their brand beyond their physical geographies. RIAs will benefit in a borderless environment from resources that help advisors and investors connect.
The Firm Of Tomorrow
RIA firms of tomorrow need the capabilities and resources to meet the demands of the next wave of investors while continuing to deliver value to their existing clients. To get there, firms will need to focus on three areas:
• Technology. Advisors will increasingly leverage technology to remove the limitations of their brick-and-mortar offices and serve clients who expect on-demand advice anytime, anywhere. These clients include not just next-gen investors, but also many existing clients, who have become heavy users of technology. Going paperless, migrating data to the cloud and using social media to engage with clients will all play major roles in RIA firms in the coming years. Expect new capabilities that will boost efficiency and enhance security, like the electronic approval capabilities for forms and wire transfers that we launched at Schwab last year. Advisors also will have multiple technology-enabled touch points with their clients—from texting to Skype meetings, online portals to mobile apps (such as the customizable app for advisors that Schwab recently launched). That technology will enable advisors to extend their reach and create meaningful connections with clients no matter where they are.
• People. The office of tomorrow will remain a place where having top talent is crucial to staying competitive. Many advisors have that talent in place. But if the industry continues to grow at its current pace, more will be needed. Where will the new workers come from? Workplace diversity (age, gender and background) will be a hot-button challenge. Nearly half (47%) of advisors in the Schwab advisor outlook study said that they need a more diverse workforce in the future. They do—and chances are, so do the other 53%. Consider that today just 19% of advisors are under the age of 40, according to Cerulli. It’s in all of our interests to bring that number up. The RIA offices that reflect the demographics of its clients will stand out and win big. For our part, we’ve been making contributions to universities for years, building financial services labs on campuses and creating intern programs to help train advisors’ future staff.
• Legacy. The importance of succession planning will increase as the founding principals who pioneered the industry look to pass on their skills and knowledge to the next wave of advisors and create enduring businesses. Indeed, 71% of RIAs plan on finding a successor to carry on their businesses, Schwab says. Identifying and grooming the next generation of leaders takes time and effort. Even the most promising young advisors at firms today typically need to grow their leadership and entrepreneurship skills in order to maintain a high-performance culture. Programs that offer the next generation of executives access to coaching and top business and leadership experts can help founders develop future leaders. Our Executive Leadership Program, launched earlier this year, was created with that goal in mind.
Look Beyond The Now
The RIA industry is still young, and it is constantly evolving. As successful as advisors have been so far, there is so much room to run. That enormous potential makes it important for advisors, and those who serve them, to stop, look beyond all the present-day demands in front of us and develop a vision of the future—one that we can connect with and own. It’s that vision of what’s to come in five, 10 or even 20 years that will empower all of us to take smart, meaningful actions right now that will turn our shared vision into reality—and take the RIA industry to an even higher level of success.
Bernie Clark is the executive vice president of Charles Schwab & Co. Inc. and head of Schwab Advisor Services, a leading provider of custodial, operational and trading support for nearly 7,000 investment advisory firms.