Advisors continue to embrace technology for both themselves and for their clients, and are sharply focused on their organic growth, according to Schwab’s Independent Advisor Outlook Study 2024.
But two areas where advisors have been somewhat challenged, the survey found, are finding ways to incorporate AI as a business helpmate and making an effort to influence regulators who are looking at the financial advisory industry with increased scrutiny.
“The advisory industry is doing very well right now,” said Tom Bradley, chief client officer at Schwab Advisor Services. “It's still the fastest-growing segment of the advice industry. And there's a reason for that. It's just a fantastic model.”
“What the advisory industry really needs to make sure they focus on is not getting complacent. And that's really, really critical,” he continued.
Some 43% of advisors said they believed that technology alone is the largest force shaping the industry today, while 22% said it’s regulation, according to the survey. Just 18% said change in the industry is being driven by clients, and 17% said it’s coming from the advisors themselves.
Of the various tech options out there, 45% of advisors said it’s the ones that help them and support their businesses that have the most influence on the industry.
“Big chunks [of money] are continuing to be invested in some of the basic technologies, such as portfolio management systems and contact management systems,” Bradley explained.
In the first category, rebalancing systems are particularly popular, he said, as are front-end interfaces for clients to boost digital interaction.
Within contact management systems, technology continues to be developed to help advisors become better prospectors, beginning with the information they already have on their clients.
“Everyone knows about the trend of M&A, but what’s being talked about in advisor circles is how to fuel organic growth, mostly through an enhanced referral process,” Bradley said. “How do we get more referrals? And then how do we leverage technology to help us with that endeavor, in fueling referrals and then fueling our organic growth?”
Integrating and making better use of client data was top of mind for advisors, as 54% of survey participants said integrating data across platforms and then creating actionable insights from it were the most important areas in which they’d like to see improvement.
The larger the firm, the more important this was, as 68% of firms with more than $500 million in assets under management said integrating data across platforms was a priority compared with 47% of firm with less than $500 million in AUM.
The annual survey polled 1,088 independent investment advisors who custody some $451 billion assets with Schwab Advisor Services. The survey was conducted in June.
RIAs represent a $9 trillion industry, and it continues to grow, the survey said. The biggest growth opportunity right for advisors is the Great Wealth Transfer, which is the transfer of $68 trillion of baby boomer assets to their Gen X, Millennial and Gen Z children and grandchildren.
About 75% of advisors are actively talking to their older clients about their assets, 70% are involving more family members in the discussion, 60% are advising clients on charitable giving, 56% are partnering with legal or estate planning professionals and 50% are analyzing client portfolios for wealth transfer opportunities, the survey said.
Aside from holding onto boomer assets as they end up in younger hands, advisors still need to focus on getting better at marketing and explaining the value of their services, Bradley said.
“The opportunity there is for advisors to have a very specific process to get referrals from clients—from their other family members, or their friends,” he said, adding that advisors who tell stories about how their services have benefited their clients should also be asking about people who could also benefit from that service.
“That's going to be very important, I think, for the advisory community to continue to fuel their growth and take market share from other areas of the industry,” Bradley said.
Bradley said the report yielded two surprises: AI has yet to be embraced by advisors in their daily practice, and the industry is a little apathetic about what’s going on with nationwide regulation.
While slightly more than half of advisors, 54%, said they expected AI to have the greatest impact on growth over the next three years, just 23% said their firm had started using it in some way. And 30% said they didn’t know what their firm’s plans were for using AI.
“We thought maybe by now that we would see more specific use cases of AI being more widely used. And that just hasn't happened in our industry yet,” Bradley said.
Among firms that did have plans for AI, 62% said they planned to use it to automate routine tasks for both advisors and clients, and 39% said they would use it enhance risk management and compliance.
“ Advisors probably need to pay more attention to what's going on in Washington, D.C., and the regulators,” Bradley said. “We see fairly low attention to that from the advisory community.”
Just 18% of advisors said they were very engaged in regulatory issues, while 26% said they weren’t very engaged or not engaged at all. That left 56% in the “somewhat engaged” category, the survey found.
This may not be good enough, Bradley said.
The industry’s voice is represented by the associations and custodian firms, he said, but as the industry has grown, so has the interest of regulators. Advisors don’t just need to know what’s going on with regulation, he continued, they need to understand how they can participate in influencing regulation.
“We had a session in Washington, D.C., a few months ago where we actually went into the Capitol and had a meeting. One of the SEC commissioners came, and we brought an advisor in with us who could tell stories about how regulation was specifically affecting or could specifically affect clients,” Bradley said. “Tthat was very powerful for the lawmakers. It was very powerful for them to hear directly from advisors.”