Many are seeking volume discounts from vendors to pass on to advisors.
With client assets shrinking and profit margins narrowing, it was no doubt tough for registered investment advisors last year-with no clear signals of an improvement in 2003. But there may be at least one thing advisors can take comfort in: Their services are in demand-maybe now more than ever.
"In some ways things are getting better for independent retail RIAs," says Matthew McGinness, an analyst with Cerulli Associates. "Most advisors indicate that they are actually still getting a lot of new clients through referrals."
Advisors don't find themselves hard-pressed to find clients because, with the market decline, investors are more likely to seek professional help, he says. "One thing that the last two years of stagnant equity markets has done is cause a lot of investors who thought they could do it themselves to seek relations with investment advisors," McGinness says. "What the bear market did is it moved many advisors from the validator to delegator column."
That trend, in fact, is having a profound impact on advisors and the way they do business-and what they want from their custodians, some observers say. Thomas Bradley, president of TD Waterhouse Institutional, says although advisors are generally seeing healthy client growth, asset growth is lagging. "What is happening here is advisors are looking for help in some way, shape or form to help control their costs," Bradley says.
One of the things TD Waterhouse has planned for 2003 to address those needs is the integration of Advent software with TD Waterhouse's platform, he says. Bradley says this will "significantly reduce costs" for advisors. Other plans for this year include a turnkey separate accounts platform and the integration of Financial Engines tools into the TD Waterhouse platform, he says.
Another impact of the margin squeeze has been that fee-based advisors have had to pay more attention to the marketing end of their business, says Mark Goldberg, president of Royal Alliance, which plans to expand its services for advisors.
"There were many many advisors who were unprepared for the reality of the last three years and needed to make adjustments," Goldberg says. "Many of them, aside from cost cutting, took in new clients for the first time in years. They're marketing."
Officials are seeing the same thing at Schwab Institutional. "This is a referral business, and the RIAs that are really not feeling anywhere near as pinched are those who are working their referral networks," says Joshua Rymer, senior vice president at Schwab Institutional.
Schwab, he says, hopes to feed that activity by increasing the number of advisors receiving referrals through the Schwab Advisor Network.
The San Francisco-based firm also sees technology as a key for advisors to cut costs, and plans to introduce a newer, more streamlined, version of its Centerpiece portfolio management software in 2003, Rymer says. Another Schwab initiative this year is to contract business management consulting services on behalf of advisors, he says. "The vision is to gather a network of independent contractors who might offer similar products at similar pricing," he says.